The People of America's Oil and Natural Gas Indusry

Energy Today - May 13, 2011

Rayola Dougher

Rayola Dougher
Posted May 13, 2011

The Hill's Congress Blog: Why the Term 'Subsidy' is Inaccurately Applied to the Oil and Gas Industry: Supporters of this proposal seem to be hoping that the horrendous complexity of our Tax Code will conveniently frame this debate as a matter of eliminating "taxpayer subsidies" for a thriving energy industry. Although it's been stated as fact that energy companies receive billions in annual taxpayer "subsidies," the reality is a lot less dramatic. Rather, the industry is afforded tax deductions to recover some of the costs associated with developing new sources and operations. Plenty of businesses, large and small, have opportunities similar to these in the tax system. Senator Baucus proposes eliminating long-standing deductions for select oil and gas companies while leaving them in place for other sectors of the economy. A big example is the Section 199 manufacturers' deduction for domestic job creation. Claiming that a tax deduction is a subsidy for one industry but a legitimate component of the Tax Code for another is punitive and incongruous. Though it makes for a convenient soundbite to demand repeal of oil "subsidies" amid large profits and soaring gas prices, this plan amounts to an energy tax that will do damage to our economy in several ways, including the likelihood of higher prices at the pump. Financial Times: Energy Source: Big Oil Pleads Its Case, But is Anyone Listening?: In defence of the oil companies, their costs are extremely high. And they put a large part of these profits back into finding new resources for the world. Chevron says that between 1996 and 2007 the US oil and gas industry invested more than $1,200bn in a range of long-term energy initiatives, compared to net income or earnings of $974bn. Put simply, Chevron says, the industry invested more than it earned. Chevron alone has invested more than $90bn in US and international operations in the past six years. And these companies do pay taxes, despite the reports to the contrary that every so often make their way around the internet.

Politico's: The Arena: Are Oil Companies the Bad Guys?: Raising taxes on these American companies (and not their foreign competitors), as Finance Committee Chairman Max Baucus has proposed, would virtually guarantee higher prices for consumers and disincentive investment here when our country so badly needs it. Our nation raised taxes on this same industry in the 1980s and there were consequences: gasoline costs went up and our imports of foreign oil increased by 13%. This proposal would also harm the bottom line of hundreds of smaller independent producers, who are responsible for over 70% of our production in the Gulf. America should be producing more energy at home, not less. Last year, the U.S. sent $72 billion more overseas than in 2009 just to buy foreign oil. The proposals under consideration in the Senate to "end subsidies" and impose excise taxes would keep us going in that direction. The public should be wary of grandstanding politicians seeking to finger point at the energy industry and impose policies that would hurt American families and the millions of shareholders, pension funds and mutual funds that have invested billions to secure their personal financial future.

Additional Resources:

CNN: American Morning: Big Oil's Big Breaks

ShopFloor: Oil Hearing: When Government Targets Companies for Taxes

Energy In Depth: Highlights From Capitol Hill

Politico: DC Can Slow Rising Gas Prices

ABOUT THE AUTHOR

Rayola Dougher is senior economist at The American Petroleum Institute (API), where she analyzes information, manages projects and develops briefing materials on energy markets and oil industry policy issues. She is the author or co-author of economic research studies covering a diverse range of topics including crude oil and petroleum product markets, gasoline taxes, energy conservation and competition in retail markets. In addition to testifying before federal and state legislators, she has participated in numerous newspaper, radio and television interviews on a wide range of issues affecting the oil industry, including crude oil and gasoline prices, industry taxes and earnings, exploration and production, and refining and marketing topics.

Prior to joining API, Rayola worked at the Institute for Energy Analysis where her research focused on carbon dioxide related issues and international energy demand and supply forecasts. Rayola holds a Masters degree in Economic Development and East Asian studies from the American University and a degree in History and Political Science from the State University of New York at Brockport.