The Senate voted three weeks ago to preserve $35 billion in tax subsidies for big oil companies. The chamber will have a chance to reconsider this decision when Congress returns from recess next week. It’s important to note that eliminating these subsidies would not hurt the economy, even though petroleum companies such as BP and ExxonMobil have paid lobbyists millions of dollars to convince lawmakers otherwise. Let’s quickly review why.
First, tax subsidies do not decrease our dependence on foreign oil. Domestic reserves are limited to begin with, and oil is profitable enough that companies don’t need incentives to find new sources. The Treasury Department estimates that ending the subsidies would affect domestic production by less than one-half of 1 percent.
Second, since there wouldn’t be a significant impact on domestic oil production ending the subsidies won’t put lots of people out of work. The oil industry is also 10 times more capital intensive than the U.S. economy as a whole, so any reduction in production would primarily mean less investment in capital goods and machinery rather than fewer jobs.
Finally, prices at the pump are determined by the international market, and the subsidies are awarded for oil production, not distribution. So removing the subsidies would likely have no effect on consumer gasoline prices.
Sens. Robert Menendez (D-NJ), Jeff Merkley (D-OR), and Bill Nelson (D-FL) in the Senate and Rep. Earl Blumenauer (D-OR) in the House have introduced legislation that would eliminate tens of billions of dollars in oil tax subsidies. You can bet the petroleum lobby will perpetrate whatever falsehoods it can to stop this legislation when Congress returns next week, but Congress should look at these subsidies with a clear and critical eye.