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Last week, I said that if Congress has to make cuts, we should embrace the idea of ridding ourselves of wasteful giveaways to the fossil fuel industry. Here's an idea. Let’s cut the Master Limited Partnership loophole and fossil fuel subsidies.  

The Master Limited Partnership is an obscure but harmful multibillion dollar loophole that allows fossil fuel companies to avoid all income taxes on transportation or processing of fossil fuels—things like oil pipelines. Renewable energy companies don’t have the same option, meaning the taxpayer is subsidizing polluters at the expense of cleaner, renewable energy. The total cost to the taxpayer? 2.4 billion dollars every 5 years. Now, some folks propose to extend the Master Limited Partnership to green industries. That’s fine, but what about leveling the playing field and cutting the deficit at the same time?

The Master Limited Partnership is just one example of the billions of dollars in handouts that polluters get from Congress. For instance, BP was able to deduct nearly $10 billion from cleaning up its own mess in the Gulf of Mexico. Over the next 10 years, fossil fuel companies will receive over $110 billion in taxpayer giveaways. Ending these subsidies would recoup the $12 billion fossil fuel companies will be able to deduct by claiming they are manufacturers, and the almost $11 billion we will lose from free leases to drill on public land.

With all the chatter in Washington, it is easy to miss what is really at stake.  The debate is about our country's future; it's about fairness; it's about whether we invest in jobs or tax breaks for hedge fund managers, polluters, and already profitable industries.  It's about whether we level the playing field for sustainable energy or continue to give unnecessary and harmful tax breaks to oil companies who have been making record profits--and not paying their fair share.

It’s time for Republicans in Congress to put their money where their mouth is. Middle class families should not be forced to scrape by with less while oil companies get away with more. Any cuts we make should reflect our priorities and needs as a country. Rather than cutting important lifelines like Medicare, Medicaid and Social Security, let’s cut corporate tax loopholes like the Master Limited Partnership. The five largest oil companies made more than $1 trillion in profits in the last decade. They don’t need our help.

UPDATE: Many of you asked how we can end wasteful tax breaks like the Master Limited Partnership. I introduced a bill with Sen. Bernie Sanders (I-VT). You can find out more here.

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Comment Preferences

  •  Good points, good idea. (1+ / 0-)
    Recommended by:

    Which is why the administration and the Hill will no doubt not act on it.

    The Class, Terror and Climate Wars are indivisible and the short-term outcome will affect the planet for centuries. -WiA "When you triangulate everything, you can't even roll downhill..." - PhilJD

    by Words In Action on Thu Jan 10, 2013 at 09:13:26 AM PST

  •  there's just one issue (1+ / 0-)
    Recommended by:

    getting votes....

    logically and morally and financially it's sound, but those oil companies donate a lot of money to people standing around you. Therefore, votes will be hard to come by, even though it makes sense.

  •  We've been subsidizing the fossil fuel "industry" (2+ / 0-)
    Recommended by:
    victoria2dc, Wino

    for almost 100 years.  They are the most profitable corporations in the entire world!  It is way past time to stop this.  It is an excellent idea - so you can count of the GOP to oppose it.

    Gravitation cannot be held responsible for people falling in love. - Einstein

    by moose67 on Thu Jan 10, 2013 at 09:23:43 AM PST

    •  Move It Forward Mr. Ellison... (2+ / 0-)
      Recommended by:
      moose67, Wino

      Just because we've done it for 100 years means nothing.  We need to stop it NOW and focus on green energy and green jobs.

      It will be a fight, but go for it please.  Do you have a sponsor in the Senate who agrees with you?

  •  An overview on Master Limited Partnerships (2+ / 0-)
    Recommended by:
    johnny wurster, nextstep

    in wiki:

    From reading this Wikipedia summary it would appear that MLPs are a lot like REITs and that all the taxable income is passed through to the limited partners of the MLPs and the LPs pay the income tax. Is there an estimate of how much tax the MLP limited partners pay and how that would be increased if MLPs were not allowed? Would it even be possible to recoup the $500 million a year on the existing MLPs? It would seem that it would be legislatively very difficult to unwind the MLPs that are already large, public, entities. The typical legislative process is to grandfather entities like this, but not allow new ones to form.  

    "let's talk about that"

    by VClib on Thu Jan 10, 2013 at 09:24:52 AM PST

    •  That's an overview? (0+ / 0-)

      That's a bad synopsis of a cliff notes summary.

      •  The overview is on wiki, not my paragraph (0+ / 0-)

        The paragraph was just my attempt to try and understand what legislative action could be taken. I doubt that many here at DKOS know what a Master Limited Partnership is but I knew it was likely that taxable income was passing to someone through the partnership structure.  

        "let's talk about that"

        by VClib on Thu Jan 10, 2013 at 04:37:28 PM PST

        [ Parent ]

        •  My apologies. (1+ / 0-)
          Recommended by:

          In fact I should apologize a second time for my failure to recognize your primary intent.

          From what I understand about MLPs, most investors receive a substantial return on their investment, especially oil related MLPs.  The option to defer taxes by reinvesting dividends is a huge benefit.

          But there is a reason why MLPs exist.  From my understanding they were originally created to offset the liability of a major catastrophe.

          It seems like another great asset for everything energy is the governments unwillingness to prosecute anyone.

          Perhaps the original function of MLPs are no longer necessary.

  •  Diary misses the tax impact. (0+ / 0-)

    MLP investments pay income taxes, but through shareholders. , just as the owner of this website, owned by Kos Media, LLC does.

    MLP's just like REITs are required to distribute at least 90% of profits to shareholders and shareholders pay the income taxes on profits at ordinary income rates.  The shareholders then pay taxes on these profits at ordinary income rates and with the new 3.8% PPACA tax on investment income.  So Federal taxes as high as 42.4% are paid on these profits - a rate much higher than the current max rate of 23.8% on dividends.  In addition, MLPs are only permitted in tax deferred accounts like IRAs to a tiny degree.

    So in what sense is too little in taxes paid on MLPs?  How much more than ordinary income rates should be paid?

    By the way this website is owned by Kos Media, LLC.  LLC means the tax treatment Kos Media gets is similar to MLPs, in that Kos Media pays no income taxes, but the shareholders do and do so at ordinary income rates.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Thu Jan 10, 2013 at 10:31:36 AM PST

    •  I don't really understand any of that, but it (0+ / 0-)

      sure as hell would be cool if dkos shareholders could deduct 10 billion in taxes for trying to clean up the God-awful mess in the beltway.

      •  cactusgal - the key to understanding MLPs (0+ / 0-)

        is that the economic ownership of the pipelines is in the hands of millions of public limited partners (these MLPs are traded on the NYSE) and not the oil companies. Nearly all the profits are actually distributed in cash to the limited partners. From the small amount of research I did this morning I don't see how additional taxes would be collected if the economic interest in the pipelines were in the hands of the oil companies. nextstep makes the case that the tax income to the federal government would likely go down, not up. I fear that this is another case of a Congressional staff member who takes partisan talking points at face value without any due diligence, or real tax knowledge, and passes it along to their member of Congress.  

        "let's talk about that"

        by VClib on Thu Jan 10, 2013 at 11:31:18 AM PST

        [ Parent ]

    •  Your synopsis lacks truth. (0+ / 0-)

      MLPs have several tax loopholes.

      •  Please educate us (0+ / 0-)

        "let's talk about that"

        by VClib on Thu Jan 10, 2013 at 12:05:57 PM PST

        [ Parent ]

      •  What tax advantage do MLPs get that (0+ / 0-)

        that Kos Media LLC does not get?

        Both have their profits taxed as Ordinary Income and subject to the additional 3.8% tax from PPACA.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Thu Jan 10, 2013 at 01:01:45 PM PST

        [ Parent ]

        •  Well, for one, (0+ / 0-)

          LLC shareholders must pay tax on profits regardless of whether they reinvest those profits back into the company or withdraw the funds.  

          MLP shareholders can defer their taxes on up to 90% of their profits if they don't withdraw those funds.

          That's one perk!

          •  Does the sheltering help the pipeline (0+ / 0-)

            operator or just the public limited partners (shareholders)? If the legislation that created MLPs was written to provide a deferral or shelter that's not a loophole, but an intentional legislative act. I am just trying to understand the benefit to the pipeline owner, rather than the MLP limited partners, so I can see how the Treasury would benefit if the pipelines were directly owned by the operator. The diary author noted that changing MLP rules would result in about $500 million of new annual tax revenue. I am just trying to understand how that would happen. I also believe that if Congress did change the rules all the old partnerships would be grandfathered.  

            "let's talk about that"

            by VClib on Thu Jan 10, 2013 at 04:47:01 PM PST

            [ Parent ]

            •  If pipelines reverted to major corporations (0+ / 0-)

              The government would be able to collect corporate income tax on profits as well as capital gains on any dividends.

              Currently MLPs aren't subject to corporate income tax.

              It all depends on the corporation's tax rate.

              There are more loopholes for corporations than there are for corporate partnerships.

              •  The same is true for any LLC or partnership. (0+ / 0-)

                such as Kos Media, LLC, or at the law firm that Rep Ellison worked for earlier in his career or any REIT and hundreds of thousands of businesses if not millions.

                Are you advocating that all business activities be done through a C Corporation and that all pass-through entities be forced to convert to C Corporations?

                The most important way to protect the environment is not to have more than one child.

                by nextstep on Thu Jan 10, 2013 at 05:38:24 PM PST

                [ Parent ]

                •  Not at all (0+ / 0-)

                  I thought we were talking about a very specific corporate environment.

                  The oil and energy Master Limited Partnerships.

                  Please don't put words in my mouth.  You asked how the Government could collect more tax revenue from changing these tax codes and I offered the simplest of answers.  Only one of a few that I can think of.

                  I'm not an expert, I am a partner in an LLC, which is nothing like these MLPs.

                  •  arlandbaee, my original question to you was (0+ / 0-)
                    What tax advantage do MLPs get that Kos Media LLC does not get?
                    Looking at the above thread, I never asked anything like
                    you said I asked
                    You asked how the Government could collect more tax revenue from changing these tax codes

                    The most important way to protect the environment is not to have more than one child.

                    by nextstep on Thu Jan 10, 2013 at 06:48:23 PM PST

                    [ Parent ]

            •  There is no sheltering in MLPs or LLCs (1+ / 0-)
              Recommended by:

              arlandbaee may be confusing that the stock price in an MLP may have increased, but no tax is paid on the gain until shares are sold (technically not shares but units).

              In any event owners in an LLC and MLPs are treated the same for capital gains from their cost basis.

              I suspect arlandbaee is completely unfamiliar with reporting of MLPs, LLCs, partnerships and any other pass through entity though K-1s.

              The most important way to protect the environment is not to have more than one child.

              by nextstep on Thu Jan 10, 2013 at 05:27:55 PM PST

              [ Parent ]

              •  nextstep - you may certainly be right (0+ / 0-)

                the reference to capital gains taxes was puzzling.

                I am still trying to understand how the estimate in the diary of the additional tax revenues would come to pass. Is there a deferral mechanism for reinvesting the distributions?

                "let's talk about that"

                by VClib on Thu Jan 10, 2013 at 05:51:39 PM PST

                [ Parent ]

              •  Not entirely. I am a partner in an LLC. (0+ / 0-)

                I don't have a lot of experience with the energy business, nor do I want to.  What are your credentials?

                •  Economist, Entrepeur and angel investor (0+ / 0-)

                  in Silicon Valley with an association with Stanford in economics and public policy.

                  I have been involved in LLCs, partnerships, MLPs, public C corporations, international technology trade, product development and operations for over 30 years.

                  The most important way to protect the environment is not to have more than one child.

                  by nextstep on Thu Jan 10, 2013 at 06:41:29 PM PST

                  [ Parent ]

          •  arlandbaee, Not true. MLP investors report (0+ / 0-)

            through K-1s, on their Form 1040 exactly the same as an LLC.  There is no tax deferral of profits for either LLCs or MLPs.

            You are just making things up or have terrible sources.  

            Taxes due from both LLCs and MLPs are based on the investors share of the business profits regardless of what they receive in distributions.

            Investors in LLCs and MLPs are treated the same for tax purposes as can be seen in IRS publications.

            See from2011 IRS instructions for Form 1065 Schedule K-1

            If you have sources to prove you comment, please do so with a link that is as credible as the IRS on these matters.

            The most important way to protect the environment is not to have more than one child.

            by nextstep on Thu Jan 10, 2013 at 05:18:11 PM PST

            [ Parent ]

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