‘This Is No Time to Discourage U.S. Oil and Gas Production’

by Greg Pollowitz

Manhattan Institute senior fellow (and NRO contributor) Robert Bryce writes in the Weekend WSJ:

The president wants to cut $4.4 billion in ‘tax breaks’ for Big Oil. This would cost consumers far more in higher prices and greater reliance on foreign supplies.

Of all the times for the U.S. to be discouraging domestic production of oil and natural gas, right now might be the worst. Libya’s descent into chaos is fueling a rapid rise in oil prices, and unrest in other oil-producing countries in the Middle East and North Africa has led some analysts to predict unprecedented oil-price spikes may be looming.

Nevertheless, President Barack Obama’s administration has not only stopped issuing permits for deep water drilling in the Gulf of Mexico, it also wants to stop “subsidizing yesterday’s energy” so that the federal government can boost revenues and spend more on developing alternative energy sources. The president’s 2012 budget, released earlier this month, calls for eliminating a dozen tax incentives that benefit producers of coal, oil and natural gas. Mr. Obama is most eager to eliminate what he calls “costly tax cuts for oil companies.”

Big Oil has long been a plump piñata for politicos and environmental groups, but a simple cost-benefit analysis shows that eliminating decades-old tax rules for oil and gas could be a lousy deal for consumers.

Two tax deductions for the oil and gas sector are most important: percentage depletion (part of the tax code since 1926) and intangible drilling costs (part of the tax code since 1913.) According to Mr. Obama’s budget, those two items will cost taxpayers about $2.4 billion per year over the next decade. A handful of other oil- and gas-related tax policies, including an increase in the amortization period for geological and geophysical expenses, cost taxpayers an additional $2 billion per year. So the sector’s total annual tax advantages amount to about $4.4 billion.

The rest here.