Oil is priced on its market value. What company sells it for less than that? The reason gas is cheaper in the US is because it is taxed less than other places, not because companies are subsidized.
Oil companies also have to pay royalties in addition to the other taxes that any other company pays.
There are external costs to running an economy on oil that are not factored into the market price. See my previous post. The trick is to determine what those costs are.
Or if we could drill our own oil so the jobs and profits and taxes swelled our own economy instead of sending it overseas. Which party favors drilling and increasing jobs and tax revenue and which party wants that money to flow like water to terrorist nations?
It takes money to fix things and we should use the free market to generate the money needed and then spend it wisely on our future. The federal government could be knee deep in alternative fuel projects and financing this with our own oil tax money. But no. Well just watch the rest of the world make money off their resources and continue to run up our debt until it blows up in our face like Greece.
That’s what taxes are for, to account and alleviate for those factors. It shouldn’t just be up to the companies to deal with those issues as they are not the only beneficiary. They produce the oil. Others burn it producing the vast majority of pollution (thus ‘driving’ the economy).
Yes and no. We all need the police, and so it makes sense for us all to pay taxes to support a police department.
But we don’t “need” oil. We may need energy, but oil is just one source of energy. If the oil industry requires significant public expenditures (eg, keeping the oil shipping lanes safe), then that’s a specific benefit that industry is reaping that other energy companies don’t need.
The major source that currently is irreplaceable in the short term.
Oil isn’t the only thing that is shipped along those shipping lanes. The obligation is to protect all shipping, not specific types.
Am I the one playing games or is it people like Claire McCaskill who state unequivocally that payments are being made by the U.S. government to subsidize oil companies? Seriously, there is simply no doubt that saying checks are being sent is being stated to try to drum up populist opposition to oil companies. Do you disagree that her statement is a lie?
Honestly the biggest supposed subsidy in dollars they are talking about is cost depletion. How is that a subsidy? Every single company in every single industry gets to expense their upfront costs. What possible rationale exists for calling that a subsidy but not calling the exact same thing for every other company a subsidy?
You’ve convinced me, lets get rid of all of them.
It’s not an issue of repealing a subsidy. It is an issue of how to expense a cost. The question is do you expense them immediately or do you capitalize them and expense them over a period of time. As it stands, the costs associated with drilling a well that basically do not relate to the final end product of a well (labor, for example) are expensed immediately while the costs directly associated with the final well (infrastructure, for example) are capitalized and expensed over a period of time.
The entire argument that it is a subsidy rests on stating that you will capitalize that cost thereby increasing your taxable income. This also, of course, has the result of reducing future years taxable income as the cost is expensed over time.
How is that possibly a subsidy?
I disagree that it is a lie, yes.
It is a subsidy because you can depreciate more than the up-front cost of drilling the well. It is a percentage depreciation of the value of the mineral you sell in that year, as I understand it, which can be significantly more than your actual up-front costs.
The issue is not cost depletion, it is percentage depletion.
Here’s a company interested in getting investors:
Conclusion
As is evident from this discussion, the tax benefits generated by a direct participation in oil and/or natural gas are substantial. The immediate deduction of the intangible drilling costs or IDCs is very significant, and by taking this up front deduction, the risk capital is effectively subsidized by the government by reducing the participant’s federal, and possibly state income tax.
It’s not giving up something that doesn’t exist. It’s misleadingly calling something a subsidy when it is simply standard accounting treatment that exists for all industries.
Look at research and development costs (R&D) as an example of how ridiculous the argument about intangible drilling costs (IDCs) are. A typical pharmaceutical or tech company spends a decent amount on R&D. These costs are expensed. People argue that the fact they are expensed stifles R&D because it makes the companies look less profitable. Of course, it also works to reduce their taxable income but no one calls it a subsidy. If they capitalized these costs, then they would pay more in taxes and show more profit. How then does an oil company expensing its IDCs become a subsidy. Why would expensing supposedly stifle tech companies but be a subsidy for oil companies.
It’s the exact opposite of sophistry. I am the one saying don’t look at the sound bite, actually investigate the issue. The Goldman example is a perfect illustration. The AIG bailout was not a bailout to Goldman because their position was backed by collateral and hedges making their net exposure immaterial. Goldman would have been made whole either way on AIG. The money was either going to come from AIG directly by funneling their taxpayer bailout to their counterparties or by a combination of the hedge counterparties making payment to Goldman and the liquidation of collateral. The simple fact that money went through AIG to cover their obligation to Goldman does not make it an indirect bailout to Goldman. That line of thinking would be sophistry.
If it simply standard accounting practice then why are there independent laws for it?
A summary of the unique tax breaks offered for oil investment here: Oil: A big investment with big tax breaks
My recollection, and you are invited to correct, is that AIG didn’t have that much money. Maybe enough to make Goldman whole, but what about everybody else?
Don’t Apple, McDonald’s, and Ford benefit from a stable geopolitical system in third world countries as well?
Further, we’re not, for the most part, talking about taxes related to oil companies exploring overseas. We’re talking about their activities domestically. How does Chesapeake Energy, for example, with operations entirely focused in the U.S. selling a product only in the U.S. have anything to do with U.S. millitary costs in the Middle East or shipping lanes or anything like that?
But percentage depletion is not used by larger companies. It is only available for 1,000 barrels of oil per day or 6,000 thousand cubic feet of gas per day of production. The primary beneficiary of percentage depletion are individuals that own royalties.
I completely agree that percentage depletion can be called a subsidy or an unfair tax break or whatever else you want to call it. It doesn’t apply to real companies though.
What is it then? Do big oil companies receive checks from the taxpayers to subsidize their operations?
So, they aren’t making enough money, then? Rifling through the Petty Cash drawer to get coffee? They need government help, the poor dears?
I understand that, which is why I then addressed IDCs - a unique part of the tax code that applies special depreciation rules to mineral drilling.
The point remains - as long as there are special laws for one industry, and those laws decrease revenues, then it’s a subsidy.
And the second point - if current tax practices for oil industries is the same as all other industry, then they shouldn’t need special tax law to deal with it.
As I understand it, the proposed changes would eliminate IDC deductions for companies of a sufficient size. Which makes perfect sense - Exxon doesn’t need the risk subsidy that IDC deductions allow, they are plenty large enough to subsidize that risk themselves.