Republicans and Oil

In My Humble Opinion
1

Just about to head out the door, but I thought I’d ask opinions.

Some Republicans are considering ending tax subsidies for oil companies. According to one reporter’s opinion on NWCN, it seems that their constituents might be contacting them and saying, ‘You’ve just passed a bill to end Medicare as we know it. You say you don’t have enough money to pay for it, and it needs to be cut. But at the same time, you not only want to continue giving money to Big Oil, you want to increase the amount. What’s up with that?’

Thoughts?

2

Personally I think that the government’s treatment of oil companies is an outrageous bondoogle even by Republican standards. For years they’ve been earning the biggest corporate profits in world history. At the same time, the federal government and various state governments give them specialized tax breaks, subsidies, free leases for drilling on government land, and other special perks. The nominal justification for all this is that oil companies need all that pork and just couldn’t survive without it. Other than the military-industrial complex and possible big agribusiness, it’s hard to name anything that the government does which is more ridiculous.

3

Oil companies are scheduled to release their financial statements this week.

Last week, Obama said that oil companies have been making record profits for a while now and don’t need taxpayer funded subsidies.

Republicans have been reluctant to cut these subsidies and voted about 2 weeks ago to continue them. The issue seems to be that Republicans are looking to reduce the Federal budget by reducing services for average people (see the news about the Ryan Budget Plan, Medicare, Medicaid, education funding, union busting, etc.) while refusing to talk about the possibility of increasing taxes on the top 10% of earners, closing corporate tax loopholes, or cutting uneeded subsidies to profitable businesses.

The only Republican I’m aware of who even mentioned being OK with cutting subsidies to big oil companies was John Boehner, and I think he changed his mind about that the next day.

4

What are the specific subsidies that oil companies get in the US, that other industries don’t receive?

Which companies are the biggest benefactors of these subsidies?

5

This is a great question. “Subsidies” really means “tax breaks” and pinning down exact numbers can be difficult due to variabilities in business from year to year and how companies do their taxes.

A general interest article with lots of information: http://www.nytimes.com/2010/07/04/business/04bptax.html "…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. "

Another:
http://democrats.naturalresources.house.gov/press-release/big-five-oil-companies-approach-1-trillion-profits-decade-yet-still-rely-100-year-old
“Nearly $1 trillion – that’s the total profit earned by the top five multi-national oil companies over the first decade of the new millennium. $36.5 billion – that’s the total in tax subsidies the American public will provide to the oil industry over the next decade. $53 billion – that’s the value that oil companies could receive from not paying royalties on some Gulf of Mexico production over the next 25 years. And 1916 – the oldest tax subsidy the oil companies still utilize.”

6

But if those tax breaks are really deductions for depreciation and amortization that are also afforded to every other business filing a tax return in the US, then they aren’t really “special subsidies” provided to just big oil.

The numbers sound large, because oil exploration in the US is a big business.

7

They do get special rates not given to other businesses. Some of the laws regarding their tax rates are from the early 1900’s when they were just starting out and needed the start up help.

The question is “Why are we continuing to give huge tax breaks to wildly profitable businesses?” Even they admit they don’t really need them.

And, they don’t pass the savings on to their customers, only to their shareholders. Also, they use tax loopholes to register their offices in other counties. If they are really no longer US companies, why do they get favorable tax breaks as though they were? The only reason they continue to get special treatment is they have well funded lobbyists who bend the ears and bank accounts of our politicians.

8

Can you post a cite on this? I’m not aware of any special tax rates for oil businesses.

Again, I’m not aware of any special corporate tax rates for oil businesses. They pay the same corporate tax rate that all other corporations do. And your issue about passing cost savings onto customers would apply to any business in the US. If the cost of tomatoes goes down, do you expect McDonalds to lower the price of their hamburgers?

Incorporating a subsidiary in another country is not a tax loophole granted to big oil. There’s nothing to prevent any company from incorporating a subsidiary in any other country where they conduct other business. Almost all multinational companies do this, not just big oil. This isn’t from lobbying. That’s just how business is done.

9

Evidently, you’ve never heard of the Oil Depreciation Allowance. Oil companies can deduct the cost of drilling – and, if they play it right (and the oil companies have accountants to make sure they do), they can save more in taxes than they paid to drill the well. See this:

10

That’s not a special tax rate as alluded to by Ca3799.

The concept of depletion deductions is the same as a depreciation or amortization deduction given to companies that manufacture products. McDonalds get to deduct the cost of the equipment they use to make hamburgers. Why should every other company in the US get to deduct the cost of producing their products, but oil companies not be given that same type of deduction?

11

The cites are in the two articles I linked above. Perhaps you are stumbling over my use of the word “special” in “special tax rates”. Perhaps I should phrase it “overly generous”.

12

Nope. Percentage depletion cannot be taken by big oil companies. It can only be taken by small guys.

13

Do the people who want the subsidies/tax breaks on oil ended envision this would lead to:
A. no change in gas prices for consumers?
B. lower gas prices for consumers?
C. higher gas prices for consumers?

It seems* to me *that gas prices would obviously rise if subsidies were eliminated. Since the oil companies are rather unlikely to shrug off a drop in their profits, the difference would need to be made up somehow, and “somehow” generally means fucking over consumers more. And, not only that, with profit shortfall being made up for by a price hike, it’d hurt the working poor more than the subsidies currently do since they need fuel to get to work and would then pay more at the pump (whereas with subsidies they might not have paid as much anually towards such “comporate welfare” considering that they generally have a lower federal income tax burden to match their lower incomes).

14

The point is that there are no subsidies to big oil companies. People write articles about about an oil companies “effective tax rates”, which are GAAP accounting measures based upon their financial reports and not the companies tax returns and make a bunch of wild ass assumptions that big oil must be getting subsidies through “depletion deductions” and those low effective tax rates" must mean that they have special deals with the IRS. All that is somebody writing articles that doesn’t understand financial accounting.

Corporate tax deductions afforded to big oil companies in the US are available to all other corporate tax payers. There is no big conspiracy to give breaks to oil companies.

15

I wonder if people who complain about oil companys and taxes bother (or even know how) to read an annual report?

In 2010, Exxon-Mobil made $383 billion in revenue, earned $30.4 billion in after-tax NI (7.9% of revenues), and paid $86.1 billion in taxes and duties (22.4% of revenues). In addition, they paid $8.5 billion in dividends to their shareholders (2.2% of revenues).

They own $200 billion of property, plant, and equipment (less depreciation) and took a charge to earnings of $14 billion to depreciation, of which $4.1 billion was for US-based equipment and the remainder to non-US equipment (I don’t think that last is relevant, but it caught my eye, so there it is…).

The company pays $1 out of every $4.54 in earnings to various state and national governments, earns profits at the rate of $1 out of every $12.65 in earnings, with the shareholders making (in dividends) $1 out of every $45.45 in earnings.

So, yeah, the numbers clearly show that the governments are getting screwed in favor of the shareholders. :rolleyes: I think the more rational argument is that the consumers are getting screwed by the governments, but that one will never fly. Easier to blame “big oil”.

16

The “early 1900’s” was when Standard Oil was the largest corporation on Earth and could hardly be described as a “start up”. It was also a political environment that was not inclined to give oil company’s “huge tax breaks”.

What US oil company has registered its home office as being outside the US?

Exxon Mobil Corporation: Irving, TX
Conoco-Phillips: Houston, TX
Chevron: San Ramon, CA
Anadarko Petroleum Corporation: Houston, TX
Devon Energy: Oklahoma City, OK
Occidental: Los Angeles, CA
Marathon Oil: Houston, TX

Above is a list of the 8 biggest oil companies in America, all of them based in America. Cite, please.

Registering an office in another country doesn’t make the company “no longer American”, it just makes it a “multi-national American company.”

17

But the numbers are peanuts. $36.5 billion of ill-defined “tax subsidies”? For the entire industry? Over a decade?

Exxon-Mobil alone paid $36.5 billion in Federal Income taxes in 2008 (effectively paying for the industries subsidies in the subsequent decade). Since 2006 they’ve paid $130.8 billion in income taxes, and an additional $343.6 billion in sales taxes, duties, and other government levies. That’s $474.4 billion by my math, paid by one company in a 5-year period. The complained-about subsidies come to a whopping 7.6% of the taxes paid by Exxon-Mobil.

The only people getting more screwed than the shareholders are the companys themselves. :wink: All joking aside, every time I look at these numbers it’s obvious that big oil is so big because it is more profitable for the US Treasury that they be so.

18

Let’s put this another way.

For starters, I’m going to assume that Exxon-Mobil will receive 1/3 of the $36 billion in subsidies, or $12 billion.

Their five-year gross revenues were $1.9 trillion, their operating expenses were $1.6 trillion, their pre-tax NI $310.7 billion, and their after-tax NI was $31.3 billion. Multiply by 2 (because we’re looking at $36 spread out over 10 years) and we have $3.8 trillion, $3.2 trillion, $621.4 billion, and $62.6 billion (also $948 billion in taxes, including $130.8 billion in Federal income taxes). Their share of the subsidy comes to .3% of gross revenues (3/10ths of 1%), 1.9% of pre-tax income, 19% of after-tax income, and 9.1% of income taxes.

I’m married, have a kid, make $70k/year, and I took the “standard deduction” of $11,500 plus exemptions of $10,950, reducing my taxable net income to $47.5k. According to the tax table, I now owe $6,300 in taxes.

But wait - we have a kid. And because we decided to stop the birth control prescription in 2000, we get to deduct $800 off of that $6,300, reducing our hit to $5,500, giving us a total net income of $42k.

A total of $23,250 in “subsidies”. That’s 33% of my total gross revenues (compared to 3/10ths of a percent). 55% of my net income, and 422% of income taxes paid.

If you want to fight the deficit, you have to attack the subsidies given individuals and families, not corporations.

19

Should be…

That’s what I get for doing math at midnight. :wink:

20

“A billion here, a billion there, pretty soon it adds up to real money.” attributed to Senator Everett Dirksen.