Politics & Policy

End Big Oil Subsidies?

This ruse has nothing to do with savings.

So Democrats have discovered a new way to stem out-of-control federal spending: “End Big Oil subsidies now!” The position isn’t exactly courageous. Nor is it exactly honest.

This week, the Washington Post reported that the Senate Democrats’ new tax agenda “is focused on ending subsidies for big oil companies,” allowing voters to direct some of that populist rage over gas prices where it belongs: Republicans. By raising the issue, Democrats hope to put the GOP in the uncomfortable position of defending “some of the world’s most profitable corporations, including Exxon Mobil, Shell, BP, Chevron, and ConocoPhillips.”

In truth, these oil giants are taking advantage of features of the U.S. tax code that are available to most corporations, and of a broad tax break that exists to encourage investments in the manufacturing sector. Even if we accept that these are “subsidies,” we can take comfort in knowing that Washington will periodically incentivize industries that produce something rather than paying them to produce nothing — as is the case with some farmers and nearly all clean-energy outfits. Further, the industry still pays an effective tax rate of 48.4 percent, compared with 28.1 percent for all other S&P Industrials, according to economist Mark J. Perry.

And some of us, believe it or not, aren’t completely grossed out by the notion of profit — even a lot of profit. Strong earnings are good news not only for those dastardly Oil Barons, but for the millions of people who depend on the industry for their employment, as well as the vast number of Americans who rely on investments in oil to bolster their pension funds, retirement funds, college funds, and so on.

An industry as useful, wide-ranging, and essential to the economy as fossil fuel is inevitably going to entail talk of “billions.” Oil corporations are indeed “highly” profitable, averaging around a 7–8 percent profit margin the past few years — but they’re less profitable than government, which hauls in a higher margin on, for example, gas taxes.

How much would Harry Reid and friends save Americans by ending these tax perks? In five years, an estimated $18 billion. To put this savings in perspective (and we’ll get back to how president Barack Obama would like to spend . . . er, “invest” this money), the federal government borrows around $28 billion every week. To make this kind of trivial savings the focus of a high-profile plan to is to engage in transparently political gotchas.

Sen. Claire McCaskill, one of the sponsors of the “Close Big Oil Tax Loopholes Act” in the Senate, says: “We’re going to face a lot of resistance when we try to take a few billion dollars in free taxpayer money away from them.” As is typical of the Left, McCaskill seems to believe that giving a company tax breaks is tantamount to giving that company taxpayer money. But who exactly does she believe is going to pay for a tax increase, anyway, if not consumers?

Granted, Republicans would do well to support removing — across the board — tax incentives that skew competition. Eliminating these subsidies is the consistent free-market position. And $18 billion is $18 billion — if it’s used to alleviate the debt crisis.

But it won’t be. Obama would rather divert “those dollars to invest in clean energy to reduce our dependence on foreign oil.” In other words, Obama plans to reroute the money to a clean-energy market that not only is already massively subsidized, but has increased the cost of power.

So, in the end, this ruse has nothing to do with savings, nothing to do with bringing down the price of gas, and everything to do with casting government as moral arbiter of energy.

— Syndicated columnist David Harsanyi blogs at The Blaze. Follow him on Twitter here.


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