>Stacking The Deck

>Yeah, such a shame that renewable energy isn’t competitive. If only solar and wind could stand on its own, you know like how oil does:

But an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by various credits. These companies’ returns on those investments are often higher after taxes than before.

When your return on investment is higher after taxes, that’s what I call a giveaway.

Here’s the part I love:

The American Petroleum Institute, an industry advocacy group, argues that even with subsidies, oil producers paid or incurred $280 billion in American income taxes from 2006 to 2008, and pay a higher percentage of their earnings in taxes than most other American corporations.

Um, so? So what? You’re supposed to pay twice or three times what you do, but you want a lollipop for paying something? What, are we supposed to say thank you? Sorry dudes, that’s not how it works. Oil companies are insanely profitable. So pay what you owe and shut up.

You know, one thing I really can’t stand is hearing how solar and wind energy simply are not competitive. Right. Let’s give renewable energy the same tax deal that oil gets, ‘mmkay? And while we’re at it, let’s factor in the true cost of fueling our economy on dead dinosaurs. Let’s include the cost of the environmental damage from air pollution and climate change and oil spills. Don’t forget the $167 billion a year we spend on war to secure our access to oil in the Middle East.

Here is something worth considering:

Some of the tax breaks date back nearly a century, when they were intended to encourage exploration in an era of rudimentary technology, when costly investments frequently produced only dry holes. Because of one lingering provision from the Tariff Act of 1913, many small and midsize oil companies based in the United States can claim deductions for the lost value of tapped oil fields far beyond the amount the companies actually paid for the oil rights.

Once upon a time, oil was a new technology and the American government felt it worthwhile to encourage this nascent industry with tax incentives and tax breaks. That was a long, long time ago but it’s generally how we do things. But oil is no longer a new technology, it’s now the big bully on the block. Other nascent industries are coming up and the American government should be encouraging these energy technologies with comparable tax incentives and tax breaks. But any attempt to do so is met with manufactured outrage from people like the American Petroleum Institute. We have to fight tooth and nail for the smallest crumbs, and it’s not anything close to comparable to what Big Oil gets.

It’s time to demand some parity here.


Filed under alternative energy, Big Oil, taxes

6 responses to “>Stacking The Deck

  1. >In a big-government crony capitalism system with extremely complex regulation, big, high-revenue companies (in any industry) will inevitably manage to get the deck stacked in their favor. …but somehow the solution is MORE tax breaks, MORE regulation? Unless I missed something in skimming through the article, it ignores gasoline taxes–as if it somehow makes a difference whether a tax is taken at the beginning or at the end of the chain. We are going to pay one way or another–either direct taxes, or indirectly when businesses pass the cost of taxes on. I want the majority of the tax burden directly on people, where we can watch and control it better.What if the US became a corporate tax haven? How many tax-paying jobs would that create? How many would it save?

  2. >I am not exactly sure if I understand Sevesteen's comment, but if you are saying that it is better to tax the people buying the product than to tax the people becoming rich by selling the product, then, you are nuts. I guess you come to this conclusion out of sheer exhaustion at the idea of regulating a corporation and making them pay. It is easier to get the money out of average citizens that cannot stand up for themselves and lobby for these "giveaways". So, lets make them pay. The whole point of SB's post; I agree with. If one industry or source is given subsidies then all comparable ones should be given the same benefits. It's not that easy in the world of Washington politics. Those congressmen have long been bought and paid for by the established oil barons. SB is brave to even suggest such a thing.My comment ends with the idea that we should never have allowed passthrough taxes. The consumer is taxed no matter what the tax on a company is. Increase the cost of fuel and we all get to pay, so that the corporate jet still flies on our dime and the bonuses continue to flow. Increase minimum wage and prices go up. When will we learn?

  3. >A tax is no different than any other expense. All costs–materials, labor, taxes–have to be passed on plus a bit of profit or the company can't grow, and long term can't even survive. I don't know how you could ban "passthrough" taxes without the government controlling the companies–the very idea indicates lack of understanding of basic economics. By the time a gallon of gasoline gets into my tank, the taxes are more than the oil company profits. Some of those taxes are applied at the corporate level, some at the pump–but where they are applied makes no difference to my wallet. Giving all comparable industries a subsidy is a never-ending spiral of complexity, strongly favoring the biggest corporations. If we subsidize petro energy, and to be fair give equal subsidies to wind and coal and nuclear and hydro and ethanol, and…You wind up subsidizing energy use. What you subsidize you get more of. We really need to switch from taxing production to taxing consumption. Less room for fraud, less room for corporate lobbying and special deals for campaign contributors.

  4. >Sevesteen is apparently a "flat tax" advocate. Tax everyone at the same rate (consumption) and we'll have a better outcome? I don't think Southern Beale said it, so I will. We should not be increasing the amount of subsidies. We should remove big oil, big pharma and big farmin' from the gummint teat and subsidizing wind, solar, geothermal and other forms of energy generation.

  5. >I am for drastic simplification of the tax code, and the proposals I like the best are a consumption tax with a universal rebate–the rebate is set at the taxes paid at some multiple of poverty level, so effectively the poor pay no taxes. For a subsidy to be effective, it requires that the government guess right on the technology. When big companies like ADM are helping with the guesses, the results are not all that accurate. I could somewhat accept loan subsidies for individuals, families and maybe small business for proven technologies with a long payback period–but subsidies to big companies are rarely if ever effective. (word verification porkersa)

  6. Jim

    >Sevesteen – I am with you. We need to remove taxes on corporations and businesses to encourage them to grow and hire more people. The wages paid will be taxed as income taxes. Corporations would not need to worry so much on trying to minimize their tax exposure and could concentrate on their core businesses.People like to get the idea that high business taxes are somehow "sticking it to the man" but in reality the only source of income a business has to pay taxes with is in the price of whatever product they sell. So naturally if taxes rise, then to pay those taxes the business needs either more money (raise prices) or lower expenses (reduce payroll). It is not like the business can just print money whenever it feels like.