My new favorite oxymoron is "shared sacrifice." It is code for balancing budgets on the backs of the poor while protecting corporate welfare. Outside of defense contractors, some of the biggest pigs at the public trough are oil, gas, and coal companies. Here is a summary of taxpayer gifts to some of the most profitable companies in history.
The graphic is somewhat misleading. As noted by the Environmental Law Institute, the disparities between subsidies for fossil fuels and renewable energy go beyond size.
Most of the largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.One could argue that most of the subsidies for renewable energy in the energy acts of 2005 and 2007 were largely window dressing. In order to take full advantage of the credits, you had to have the project sited, approved, leases signed, and fully capitalized almost as soon as the bills were enacted to beat expiration deadlines. That is a pretty tall order when the domestic manufacturing infrastructure is small and forces you to rely on foreign suppliers. Add in the tight credit market and complex regulatory approval environment, the subsidies quickly become a very small carrot on a very long stick.
You have to admire the sheer audacity of creating permanent tax breaks for oil companies at a time when they were reporting record profits on record revenues. That, my friends, is chutzpah. Adding insult to injury, many of those deductions subsidized offshore leasing and fees.
The subsidies examined fall roughly into two categories: (1) foregone revenues (changes to the tax code to reduce the tax liabilities of particular entities), mostly in the form of tax breaks, and including reported lost government take from offshore leasing of oil and gas fields; and (2) direct spending, in the form of expenditures on research and development and other programs. Subsidies attributed to the Foreign Tax Credit totaled $15.3 billion, with those for the next-largest fossil fuel subsidy, the Credit for Production of Nonconventional Fuels, totaling $14.1 billion. The Foreign Tax Credit applies to the overseas production of oil through an obscure provision of the U.S. Tax Code, which allows energy companies to claim a tax credit for payments that would normally receive less-beneficial treatment under the tax code..
Source: Environmental Law Institute
There is also the Last In, First Out (LIFO) accounting gambit. LIFO allows large oil companies to value their inventories at deeply discounted prices. This loophole has saved oil companies over $4 billion per year in taxes. A summary of other oil industry specific tax breaks can be found here.
We are not alone in providing welfare for fossil fuels. The International Energy Agency (IEA) has estimated that fossil fuels subsidies worldwide topped $557 billion in 2008. Getting rid of these subsidies is essential to facilitate the transition to a low carbon energy economy.
“I see fossil fuel subsidies as the appendicitis of the global energy system which needs to be removed for a healthy, sustainable development future.”Appendicitis? Cancer is more accurate.
-IAE Chief Economist Fatih Birol
Opposition from the White House
President Obama has consistently opposed subsidies for fossil fuels. In each of the three budget submissions to Congress, the administration has requested that most of the subsidies be eliminated. Those requests in 2009 and 2010 were not acted upon.
This year the president even called for an end to the subsidies in his state of the union address.
We need to get behind this innovation. And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. (Applause.) I don’t know if -- I don’t know if you’ve noticed, but they’re doing just fine on their own. (Laughter.) So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.The formal request included termination of tax preferences for oil, gas, and coal companies. Here is the text of the request for terminating the oil and gas tax preferences.
To foster the clean energy economy of the future and reduce the Nation's reliance on fossil fuels that contribute to climate change, the Administration proposes to repeal tax provisions that preferentially benefit fossil fuel production. Oil and gas subsidies are costly to the American taxpayer and do little to incentivize production or reduce energy prices. Removing these subsidies would reduce greenhouse gas emissions and generate $43.6 billion of additional revenue over the next 10 years, an amount that represents only a small percentage of domestic oil and gas revenues -- about one percent over the coming decade. These terminations free up resources to invest in clean energy development and production, which is critical to the Nation's long-term economic growth and competitiveness.The administration has also provided a consistent rationale for eliminating those subsidies. Energy Secretary Steven Chu has couched the issue in terms of shifting incentives away from established or mature technologies while making investments in new technologies.
“If you look at the history of the United States, there are mature technologies and there are technologies that need more help,” Chu said, adding that oil and natural gas are “mature technologies” and solar needs additional research and development.Predictable support for corporate welfare
“We will need oil, we will need gas, we will need coal, there’s no doubt about that. But we consider those mature technologies,” Chu said.
Republicans oppose ending subsidies for fossil fuels. What passes for logic among conservatives is that they do not want raise taxes on oil companies or raise spending on renewables. Funny how that works. You can now see the genius behind the Energy Policy Act of 2005 that changed the tax code to help oil, gas, and coal companies while offering only short-term incentives for renewables.
The industry also responded with its usual mixture of distortions and lies. Here is the bluster from Jack Gerard, President of the American Petroleum Institute:
“It’s no surprise the administration is proposing yet again to raise taxes on the U.S. oil and natural gas industry. But it’s still a bad idea and comes at one of the worst times in our economic history. The administration continues to ignore the fact this industry is among the nation’s largest job creators and delivers enormous revenues to government at all levels. The industry pays income taxes, royalties and other fees totaling nearly $100 million every day and pays income tax at an effective rate far higher than most other industries.
“Besides eliminating thousands of new potential jobs, the increases, over the long term, would actually lower revenue to the government by many billions of dollars as a result of foregone revenues from projects the tax hikes would prevent going forward.
The oil industry may be paying taxes, but much of it goes to pay royalties in other countries. Despite profits in excess of $40 billion in 2009, ExxonMobil received a refund of $46 million. Taxpayers in America are subsidizing royalty payments to other countries while the oil companies are working to hide their assets in offshore tax havens.
Exxon tries to limit the tax pain with the help of 20 wholly owned subsidiaries domiciled in the Bahamas, Bermuda and the Cayman Islands that (legally) shelter the cash flow from operations in the likes of Angola, Azerbaijan and Abu Dhabi. No wonder that of $15 billion in income taxes last year, Exxon paid none of it to Uncle Sam, and has tens of billions in earnings permanently reinvested overseas.Ending Big Oil Tax Subsidies Act
A group of Democrats have introduced a bill in the House to end tax breaks for oil companies. The effort is long overdue.
Today, Reps. Earl Blumenauer, Ed Markey, John Conyers, Jim Moran, Lois Capps, Peter Welch and David Price and others introduced legislation to cut the budget by ending roughly $40 billion over five years in wasteful subsidies to the oil industry. The “Ending Big Oil Tax Subsidies Act” (H.R. 601) eliminates subsidies that have worsened the deficit, weakened our energy security, undermined our ability to drive investment in sources of renewable energy, and damaged the environment.These representatives are to be commended taking the initiative to highlight the hypocrisy of demanding spending cuts for the social safety net while protecting tax cuts for the richest corporations on earth. One question, however, does come to mind. Why didn't House Democrats push for eliminating welfare for oil, gas, and coal companies during the previous two budget cycles when they had the power to do so? The White House budget requests included the elimination of tax preferences for oil, gas, and coal companies during those years. The Environmental Law Institute's analyses and report, which was used by Blumenauer and colleagues in crafting the bill, was published in 2009.
“The oil industry is one of the most profitable industries in the world and does not need help from the government,” said Rep. Earl Blumenauer. “With Congress already discussing painful budget cuts that will require American families to make sacrifices, it is only fair that we also stop the handouts to our richest oil companies. “It makes no sense that we are borrowing money from China to subsidize the most profitable industry in the world and corporations like ExxonMobil that earn billions every year. It’s time for us to have a serious, rational discussion about cutting the budget.”