About those oil company subsidies

When President Obama gave a speech on the high price of gas, one of the things he called for was for congress to “take immediate action to eliminate unwarranted tax breaks for the oil and gas industry and use the dollars to invest in clean energy.  “Usually these tax breaks are referred to as “subsidies” by the press and Democrats who point the finger of blame for high gas prices at oil companies.

The truth is, a tax break is not properly a pure subsidy.

Subsidies are funds that governments give to someone to encourage and assist them to take an action. By reducing taxes for an action, that can have the same sort of effect, but it is more properly a tax break.

This is a critical difference, because it reveals a distinction in how people understand taxes and earning. Money businesses earn is their money and taxes are a small portion they send to the government. Calling tax breaks a “subsidy” reverses that fact, turning earnings into something the government owns, while taxes become the government allowing the company to keep some of their earnings.

So in a sense, taxes could be considered a sort of subsidy to the government, by sending it money to allow it to take actions, rather than the reverse, and as Jack Gerard, president of the American Petroleum Institute, says, the oil industry ends up paying $95 million a day in taxes.

In the case of oil companies, the tax breaks in question are part of IRS Code Section 199, which allows any business to deduct certain expenses from their tax returns. The maximum allowable deduction is 9% of those expenses, and this is part of the tax code passed in 2004 under the American Jobs Creation Act.

The idea at the time was to make it possible for businesses to take some risks and if those risks didn’t pan out to get a tax break to reduce the pain and cost. This in theory would encourage businesses to expand and hire more.

Read more at the Washington Examiner:  About those oil company subsidies | Christopher Taylor | Opinion Zone | Washington Examiner.

John Stossel challenges rage against Big Oil profits

Responding to recent outrage about”record high”petrol prices in the USA, and the “excessive profits” of Big Oil, John Stossel has written a well-argued, brief article called “Why is Profit a Dirty Word?

Hat tip to Tim Warner

John Stossel’s article begins by quoting Democrat Senator John Kerry saying “Oil companies in America are reporting record profits. Record profits.”

I couldn’t find this particularquote on the web or on John Kerry’s website, but there’s no shortage of John Kerry railing againstBig Oil’s …”windfall profits” … “price gouging“, and so on.

The Democratic Party has been pushing to end“billions of dollars in oil industry subsidies”. I need to find out more about this, but it appears that many of these so-called”subsidies” are actually just mis-namedtax breaks.


In this out-of-date National Center for Policy Analysis articlethe following points are made:

Critics claim that fossil fuel use in general and U.S. oil companies in particular are heavily subsidized and thus major beneficiaries of “corporate welfare.” However, income taxes aside, the oil industry, returns more money to the government than it gets in so-called subsidies. No renewable energy source can make this claim. For every dollar the oil industry receives, either directly or indirectly, the government gets three dollars in gasoline excise taxes over and above the amount earmarked for transportation.

via John Stossel challenges rage against Big Oil profits | The PRODOS blog.

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