Might as well recap the bill itself. Because it targets the “Big 5” oil companies by repealing the subsidies only for companies with substantial market share, the bill will only take in $21 billion over 10 years, as opposed to the $40 billion expected. This is a drop of oil in the bucket with respect to the overall deficit, though it’s half of what was agreed to on 2011 appropriations. Still, the game Harry Reid tried to play with John Boehner, saying that deficit reduction should begin with canceling these tax breaks, sounds a bit false when Boehner wants trillions and Reid comes back with $21 billion.
That doesn’t mean that these tax breaks aren’t offensive. Oil and gas companies frequently call royalty payments to foreign governments for drilling on their land “foreign taxes,” making them eligible for a foreign tax credit in the US. That subsidy would end under the bill. Oil companies get a 6% deduction for production of oil and natural gas, despite the extreme profitability of the product. That subsidy would end. The same corporations get deductions for “intangible drilling and developing costs” that add up to, on average, 70% of total costs. That would end. Oil companies get a deduction on their “depletion allowance” for oil and gas wells; in other words, a recovery of their initial capital investment of producing the well. The deductions often exceed the original investment. That would end. The oil giants get royalty relief for deepwater drilling, from the 2005 energy bill. That’s ridiculous and it would end. If there’s somehow a benefit to giving this money to the richest companies in the world, I don’t see it.
But the $21 billion saved in repealing all of these subsidies, on companies with tens of billions in profits every quarter (remember this is $21 billion over 10 years), would go entirely to deficit reduction, rather than what the Obama Administration prescribed, toward alternative energy R&D. This isn’t even a consensus opinion in the Democratic caucus:
Brown told reporters that the plan will “Call the Republicans’ bluff — do they really care about deficit reduction?”
But Senate Finance Committee Chairman Max Baucus (D-Mont.) has floated a plan that would steer the savings from repeal of the tax breaks into alternative fuels and vehicle incentives – not deficit reduction.
Baucus appears to be moving forward on a slower track. He is holding a Thursday hearing on industry tax breaks.
“We will have legislation soon. Like all things, it’s ready when it’s ready,” Baucus told reporters in the Capitol Monday evening. “There are a lot of factors, there are a lot of senators with different points of view.”
Asked about using the savings from tax break repeals to help battle the deficit, rather than his alternative-energy plan, he replied, “That’s one of things we’ve got to work out, what makes the most sense.”
So this is essentially a tax bill, and the head of the tax-writing committee has a different idea about where the money would go.
I recognize that, given the issue, the Senators involved, and the conversation in Washington, this is a political ploy, and I shouldn’t be covering it as if it’s real legislation. But the facts are pretty clear. $21 billion in tax breaks is half the total costs of the industry, they aren’t being funneled into more intelligent ways that the federal government can encourage a smarter energy policy, and so really, you’re just talking about stripping demand, albeit a very miniscule amount on a long time horizon.
It’s another issue where Republicans are talking nonsense, but Democrats are mainly talking politics.