Oil Company “Subsidies” Clarified

[Larrry]

http://hotair.com/archives/2011/05/03/oil-company-subsidies-clarified/

We're still seeing a flood of calls from both sides of the aisle to cut subsidies as part of an overall strategy to reduce spending in Washington. While there is plenty available to cut, there has been a steady and disingenuous conflation being promoted by the White House which seeks to describe certain tax benefits received by companies in all manner of industries as "subsidies for big oil." Just last week Tim Pawlenty was taking to the stump in an attempt to call out these warped descriptions.

MANCHESTER, N.H. – Former Minnesota Gov. Tim Pawlenty called a White House proposal to reduced tax breaks for oil companies "ludicrous" after a gathering of tea party activists.
"I think we should have a discussion about all subsidies," Mr. Pawlenty told Washington Wire at a forum for 2012 GOP presidential hopefuls. "But the Obama proposal is ludicrous. I mean the worst thing we could do is raise the cost burden on costs on energy and oil… What he's proposing is a tax increase on energy at a time when the gas is $4 a gallon. It's preposterous."

For those seeking to sort out the definitions of the terms being used, the American Petroleum Institute has published a new paper doing just that.
Contrary to what some in politics and the media have said, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Since its inception, the US tax code has allowed corporate tax payers the ability to recover costs and to be taxed only on net income. These cost recovery mechanisms, also known in policy circles as "tax expenditures", should in no way be confused with "subsidies", i.e., direct government spending.

Here are a few of the items which are being incorrectly identified as "subsidies" inside the beltway:

Intangible Drilling Costs – Companies which engage purely in energy exploration and discovery can recover their costs related to exploration at tax time at a rate of 100%. This lessens the burden on energy providers for the number of "dry holes" which may be found in the process. Integrated companies (i.e. "big oil") can recover these exploration costs at 70%. Not a subsidy.

Domestic Manufacturer's Deduction (Section 199) – A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S. The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.

Percentage Depletion – The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. This depletion method is not available to companies that produce oil as well as refine and market it (i.e. "Big Oil".) This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.

There are more, so download the paper and read them for yourself. Then, when you hear your congressman talking about all of the "subsidies" for big oil, you can set them straight based on the facts.
To be clear, the federal government does engage in the handing out of a lot of actual subsidies, including those for ethanol and a variety of wasteful programs which are essentially failures on their own merit without feeding off the teat of Uncle Sam. And we should certainly be looking at those areas as way to address cost cutting. But trying to depict tax credits used by the energy industry – in the same fashion as every other industry – as some sort of special love festival for Big Oil is dishonest

tex it looks like you felll for the liberal koolaid

 

[Tex]

http://hotair.com/archives/2011/05/03/oil-company-subsidies-clarified/

We're still seeing a flood of calls from both sides of the aisle to cut subsidies as part of an overall strategy to reduce spending in Washington. While there is plenty available to cut, there has been a steady and disingenuous conflation being promoted by the White House which seeks to describe certain tax benefits received by companies in all manner of industries as "subsidies for big oil." Just last week Tim Pawlenty was taking to the stump in an attempt to call out these warped descriptions.

MANCHESTER, N.H. – Former Minnesota Gov. Tim Pawlenty called a White House proposal to reduced tax breaks for oil companies "ludicrous" after a gathering of tea party activists.
"I think we should have a discussion about all subsidies," Mr. Pawlenty told Washington Wire at a forum for 2012 GOP presidential hopefuls. "But the Obama proposal is ludicrous. I mean the worst thing we could do is raise the cost burden on costs on energy and oil… What he's proposing is a tax increase on energy at a time when the gas is $4 a gallon. It's preposterous."

For those seeking to sort out the definitions of the terms being used, the American Petroleum Institute has published a new paper doing just that.
Contrary to what some in politics and the media have said, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Since its inception, the US tax code has allowed corporate tax payers the ability to recover costs and to be taxed only on net income. These cost recovery mechanisms, also known in policy circles as "tax expenditures", should in no way be confused with "subsidies", i.e., direct government spending.

Here are a few of the items which are being incorrectly identified as "subsidies" inside the beltway:

Intangible Drilling Costs – Companies which engage purely in energy exploration and discovery can recover their costs related to exploration at tax time at a rate of 100%. This lessens the burden on energy providers for the number of "dry holes" which may be found in the process. Integrated companies (i.e. "big oil") can recover these exploration costs at 70%. Not a subsidy.

Domestic Manufacturer's Deduction (Section 199) – A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S. The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.

Percentage Depletion – The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. This depletion method is not available to companies that produce oil as well as refine and market it (i.e. "Big Oil".) This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.

There are more, so download the paper and read them for yourself. Then, when you hear your congressman talking about all of the "subsidies" for big oil, you can set them straight based on the facts.
To be clear, the federal government does engage in the handing out of a lot of actual subsidies, including those for ethanol and a variety of wasteful programs which are essentially failures on their own merit without feeding off the teat of Uncle Sam. And we should certainly be looking at those areas as way to address cost cutting. But trying to depict tax credits used by the energy industry – in the same fashion as every other industry – as some sort of special love festival for Big Oil is dishonest

tex it looks like you felll for the liberal koolaid

hypocritexposer wrote:
Quote:
May 02, 2011
About Those Oil Subsidies
By Randall Hoven

Everyone wants to end subsidies to oil companies, from President Obama to John Boehner and Paul Ryan. My question was "What subsidies?" Remarkably enough, CNN Money provided the answer.

It turns out that they are all tax "breaks." I even hesitate to call them "breaks" because some of them amount to little more than Congress defining accounting terms such as "capital equipment." And the total amount of earnings not collected in taxes (which liberals define as a "subsidy") is about $4 billion per year. Here is how that breaks down.

Domestic manufacturing tax deduction -- $1.7 B. This is a tax deduction given to every manufacturer in the US. Per CNN, it was "designed to keep factories in the United States." If that deduction were eliminated for oil companies only, it would mean singling out oil companies from all other manufacturers.

Quote:
Tex: So we have to have a manufacturing tax because we don't have a decent trade policy and then EVERYONE gets it. How about a tax on imports instead? One way would reduce the tax burden on people in the U.S. and one just puts it on the nation's credit card AGAIN.


Percentage depletion allowance -- $1 B. Any industry can write down a portion of the cost of its capital equipment as part of the cost of doing business. Right now, oil in the ground is treated as capital equipment. Again, this "subsidy" amounts to how the cost of doing business is defined. All companies get it, not just oil companies.

Quote:
Tex: Oil in the ground they found should not be written off AGAIN. The costs of getting it are already written off so this would truly be a subsidy.


Foreign tax credit -- $850 million. Companies get credit for taxes they pay to other countries. All companies get this "subsidy," not just oil companies. Should a company pay tax on tax? Should only oil companies pay tax on tax?

Quote:
Tex: Oil from countries with nationalized oil supplies are basically taxing the whole amount already. Why should oil companies get credits on taxes they pay to other countries if they are paying a lower rate in those countries than here in the U.S.? I sure do not want deductions for businesses for supporting other country's governments to be written off what they pay here in the U.S. That would be just silly. Just think, a tax to Venezuela's Hugo Chavez's govt. could be written off what a company pays in U.S. taxes. This just strikes me as a little silly. What about corporate taxes paid to the Marshall Islands so they can have a lower corporate tax rate by shopping countries? Is that a tax write off too?


Intangible drilling costs -- $780 million. According to CNN, "[a]ll industries get to write off the costs of doing business, but they must take it over the life of an investment. The oil industry gets to take the drilling credit in the first year." Among these four tax "breaks," this smallest one was the only one that treated oil companies differently.

Quote:
Tex: I think that oil companies should be able to write off drilling expenses the first year--- and then they just have to pay taxes on the income from the oil they sell when they sell it.


The above tax "breaks" explain how much tax revenue is not collected from all oil companies. How much is collected?

Exxon recently released its first quarter results for 2011. The number grabbing the headlines was Exxon's profit: $10.65 billion in a single quarter. The number not given quite as much exposure was the taxes it paid in that same quarter: $8 billion, or 42% of income before taxes.

And what does Exxon do with all that money it has left after paying $8 B in taxes? It put $7.8 billion into capital and exploration, as part of its plans "to invest between $33 billion and $37 billion per year over the next five years to develop new energy supplies."

Quote:
Tex: This is what happens when you don't match actual depreciation with real depreciation. The numbers can be off quite a bit---but that is what they are asking for!!!


In any other industry, that would be called "research and development." Exxon is plowing 73% of its after-tax profits back into R&D. Who would be better at spending $4 billion of energy companies' earnings in an attempt to provide our energy in the future: the energy companies or Obama's energy czar?

Quote:
Tex: Who would be better at spending the taxes I pay--- me or the government? That is really a simplistic view with touches of validity. IF we have a huge government because we allowed it to get huge then why in the heck does some rich guy or a corporation get to not pay their fair share of taxes and instead either lump it on someone else or on the nation's future generations? This seems to me to be more unfair.


Do you know what oil company does get US subsidies, and not just tax "breaks"? Petrobras, Brazil's state-owned oil company. According to the Wall Street Journal,

Quote:
The U.S. is going to lend billions of dollars to Brazil's state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil's Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil's planning minister confirmed that White House National Security Adviser James Jones met this month [August 2009] with Brazilian officials to talk about the loan.


Quote:
No doubt this is a one of those deals where the U.S. loans the money so a U.S. company can get the work in that oil field. This reporter needs to tell the truth, the whole truth, and stop half reporting. I don't know the nature of this deal.

A little research on the net shows this to be the case--- why couldn't this reporter get it right---does he get his news from Glenn Beck????

http://www.snopes.com/politics/gasoline/braziloil.asp



Just to re-cap a few pertinent features of these "subsidies" to oil companies that Obama wants to cut.

* They are all tax "breaks," or earnings that oil companies get to keep, not money paid out from the US Treasury.

* The amount of earnings not collected in taxes is about $4.3 billion per year -- about 0.2% of this year's deficit and enough to fund about 10 hours of current US government spending.

* A full $3.55 billion of that amount (82%) is due to the way taxes are treated for all industries or manufacturers. To change these tax laws only for oil companies would require singling them out among all industries for special mistreatment. (I'm not a lawyer, but that sounds like a bill of attainder to me, something our Constitution forbids.)

* The only tax in which the oil industry seems to get special treatment compared to other industries is intangible drilling costs. The amount of that subsidy? That would be $0.78 billion per year -- enough to fund less than two hours of federal spending in 2011, and not even half the amount we are lending a foreign-owned and state-owned oil company for drilling offshore Brazil.

* Oil companies already pay tax rates of 40-50% of income. For one company, Exxon, in one quarter of one year, that amount was over $8 billion, or almost double the so-called tax "subsidy" for all oil companies for an entire year.


If you think oil companies enjoy some special privilege because of the money they throw around Washington, DC, consider that the Oil & Gas industry ranked only 19th in the amount of money contributed to politicians in the 2008 election cycle: $17.7 million. Who was number one? Lawyers, who contributed $126.9 million, or over seven times as much as the Oil & Gas industry. The Education lobby gave $37.4 million, more than twice as much as Oil & Gas.

You might not realize it, but private oil companies don't own much oil. Most oil in the ground, in fact 87% of the world's supply, is owned by state-owned companies, and most of that by OPEC countries and Russia. Exxon, for example, owns only 0.68% of worldwide oil reserves. Venezuela owns 7.34%, more than 10 times as much as Exxon. What Exxon does is explore, drill, transport, refine, and distribute. It makes its money by doing things, not by sitting on capital.

According to the DOE's Energy Information Administration, every time you fill up your gas tank, more of your money goes to taxes than goes to refining costs and profits combined.

Having said all that, go ahead and get rid of that special treatment of intangible drilling costs. Make oil companies write them down over the life of their investments, not just one year. Increase corporate taxes in the US, where corporate tax rates are already highest in the world. Collect enough money to fund the federal government for two hours.

And of course, tell your constituents you don't kowtow to those big, bad oil companies. Unless they're owned by Brazil.

Randall Hoven can be followed on Twitter.


http://www.americanthinker.com/2011/05/about_those_oil_subsidies.html


This is exactly the shallow and one sided propaganda that is masqueraded around as news. It was probably written or its writing financed by the oil companies themselves.

Anyone with critical thinking skills should be able to catch the bias of an article like this. It is necessary when observing all the salesmen of today trying to sell their point of view instead of "independent reporting". I don't think independent reporting exists anymore.

Tex

Tell me, Larry, where? I don't think they should get the manufactured in the U.S. tax break-- everyone should be paying a tax that imports into the U.S. to get that demand and that value from people who live in the U.S.

My approach would bring money into the government and big oil's and big industry's would take away from the public by giving a tax break.

You tell me which is more sound.

There should be no extractive tax breaks (depletion) that is more than the cost. That is a tax break. It does happen for individuals and I bet there are a lot of people who work in the oil industry who take this tax break and some who actually work for the big oil companies.

This is a subsidy to them.

The ethanol subsidy gets paid to the blenders of corn alcohol, so I guess that is really a subsidy for oil companies when the price of ethanol is less than the cost of gasoline. This is really a subsidy to oil companies that is touted as a farm subsidy when the price of gas goes over the price of ethanol.

I may be wrong about this, but if I am, please someone put that information in here. The question is whether oil companies get the ethanol subsidy when ethanol is the same price as gasoline or lower.

Here are the "rack" prices of ethanol:

http://www.dtnprogressivefarmer.com/dtnag/common/link.do;jsessionid=BD0F0CC287F30A26EE7D340C2B36D3D0.agfreejvm2?symbolicName=RENEWABLE_FUELS_PAGE_FREE

Tex

Thanks for pointing that one out, Larry.

 

[Larrry]

Tex you art still stuck on the idea of tax breaks, as if the Government is GIVING the oil companies something.

 

[Tex]

Tex you art still stuck on the idea of tax breaks, as if the Government is GIVING the oil companies something.

Larry, they are "giving" them access to the most important thing in a capitalist economy-----Demand for their products.

Tex

 

[okfarmer]

Tex you art still stuck on the idea of tax breaks, as if the Government is GIVING the oil companies something.

Larry, they are "giving" them access to the most important thing in a capitalist economy-----Demand for their products.

Tex

Actually, capital is the most important thing in a capitalistic economy.

 

[Larrry]

Tex the gov isn't giving them access, they already had access. The government is only threatening to take their money for the governments little social games. You still haven't comprehended the "subsidy issue" Try a little harder. it might help if you'd check your envy at the door before you try to understand what the government is trying to do. And yet some people fall for their little game.

 

[Tex]

Tex you art still stuck on the idea of tax breaks, as if the Government is GIVING the oil companies something.

Larry, they are "giving" them access to the most important thing in a capitalist economy-----Demand for their products.

Tex

Actually, capital is the most important thing in a capitalistic economy.

No, actually, it isn't. Without demand, all the capital in the world means nothing. Did you forget the story about Midas? He thought the same thing.

Capitalism is an economic system to meet demand.

Tex

 

[Tex]

Tex the gov isn't giving them access, they already had access. The government is only threatening to take their money for the governments little social games. You still haven't comprehended the "subsidy issue" Try a little harder. it might help if you'd check your envy at the door before you try to understand what the government is trying to do. And yet some people fall for their little game.

Larry, I don't believe the government should be handing out favors in their political games to stay in power. Their function is to set the rules for the game that is best for everyone in the society, not just those paying them off.

To make it worse, they are handing out favors with borrowed money instead of having the nuts to tax and get the money in real time. They have been selling public policy to the highest bidder. That does put a chip on my shoulder.

It is okay for short periods of time to deficit spend, but not in the long term. In the long term, all debts must be paid.

The rules have been bent to favor the rich. Even Warren Buffet will tell you that. Rupert Murdoch will not. His greed and self interest exceeds his morals or his interests in society as a whole.

Tex

 

[okfarmer]

Larry, they are "giving" them access to the most important thing in a capitalist economy-----Demand for their products.

Tex

Actually, capital is the most important thing in a capitalistic economy.

No, actually, it isn't. Without demand, all the capital in the world means nothing. Did you forget the story about Midas? He thought the same thing.

Capitalism is an economic system to meet demand.

Tex

Try to run/open a business without capital, see how far you get. And with your exceptional prowess of economics, i'm curious...how many successful businesses have you established and are currently managing?

 

[Larrry]

Larry, I don't believe the government should be handing out favors in their political games to stay in power.



Tex

Try again you aren't comprehending what the so called subsidies really are. They are trying to do away with legitimate business expense deuction. That is wrong and will only drive fuel up for you to pay so the gov can get more revenue.

 

[Tex]

Larry, I don't believe the government should be handing out favors in their political games to stay in power.



Tex

Try again you aren't comprehending what the so called subsidies really are. They are trying to do away with legitimate business expense deuction. That is wrong and will only drive fuel up for you to pay so the gov can get more revenue.

Larry, as I see it, there are two things going on here to comprehend:

1) An adjustment to the depreciation schedule
2) An overhaul of the depletion allowance
3)Decreasing the manufacturing credit

I don't think they are trying to do away with ANY legitimate business expense on any of these.

The first one is just to match the depreciation better with the life of the asset produced by the investment (this is always a guess)

The second needs to be adjusted so that the deductions are not higher than the costs.

The third needs to be done in a different way--- by revaluing the dollar or import export policies.

Tex

 

[Larrry]

What they are doing though is having a different set of rules for the oil companies than other businesses. The thing is by changing the rules on them you only pass the buck on to the consumer. He is the one paying the bill.

 

[Tex]

What they are doing though is having a different set of rules for the oil companies than other businesses. The thing is by changing the rules on them you only pass the buck on to the consumer. He is the one paying the bill.

No, that isn't a different set of rules, Larry. They need to close ALL loopholes for these companies and people like you and I need to stop buying their BS.

Depreciation schedules for real estate is different from oil and gas as it is with almost all types of assets. They try to match the average asset life curve with how they allow depreciation. How is that a different set of rules that is not justified?

Don't believe all the talking points you hear from these corporations. They are meant to pitch the best line to keep their loopholes. We are adding to our national debt because of these kind of loopholes. Don't think it is because of SS by those wanting to keep the loopholes. We just have a few politicians who would rather give loopholes to people who are paying them off and raid the SS fund to make the difference. They have been doing it for years.

Tex