Those ‘Oil Subsidies’

by Jonathan H. Adler

Ramesh — I agree with your post, with one caveat. The percentage depletion allowance for oil and gas can enable a producer to claim total depreciation in excess of the cost of their investment. This is because the depreciation is calculated as a fix percentage of annual gross revenue. I think it is fair to characterize this as a subsidy, and I would not want to extend its application more broadly. Of course, eliminating the percentage depletion allowance would not bring down gasoline prices. Indeed, insofar as it discourages additional production on the margin, it could actually encourage oil prices to rise.

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