The Corner

The Kochs: Romney’s ‘Secretive Oil Billionaires’?

At the end of last week, the Obama campaign released a new ad accusing “secretive oil billionaires” of supporting Mitt Romney because of his tax preferences for oil companies.

An Obama spokesman claimed these covert Croesuses were “making good on their promise to spend hundreds of millions of dollars on Governor Romney’s behalf,” making it clear that they were talking about Charles and David Koch. Supposedly this support is attributable to the fact that, as opposed to Obama, “Governor Romney has introduced a tax plan which charges taxpayers $4 billion a year to provide subsidies to oil-and-gas companies making record profits.”

But Obama campaign’s claim, that the Kochs oppose Obama because of their selfish “oil billionaire” interests, doesn’t ring true.

There are some semantic issues with the Obama campaign’s smear, for one: The Koch brothers and Koch Industries do make billions off of oil-and-gas refining, but they have huge interests in other industries, from polyester to ranching, and they aren’t oil producers, making them quite different from the big-oil companies which are making “record profits” from high crude-oil prices. (Koch Industries does have a subsidiary called Koch Exploration Company which develops oil-and-gas properties in the U.S. and Canada, but it is tiny by comparison to their oil-refining businesses — the latter is what has made them “oil billionaires.”)

And the tax preferences Romney plans to preserve and the president would like to cut actually, in the main, don’t apply to the Kochs.

The president’s 2013 budget proposal proposes to cut eight different oil-and-gas tax preferences (page 80, here), but it appears that only one of them would likely apply to the Kochs’ main businesses.

#more#Depending on how the president’s budget defines “oil and gas companies,” Koch Industries could lose one preference, a manufacturing tax credit extended to oil companies (though see below, about the Senate proposal; it’s quite possible Koch Industries wouldn’t fit the bill). This credit will cost the federal government $570 million in 2013, but it’s hardly a special give-away to oil companies. In fact, repealing it would basically be a bill of attainder against the oil-and-gas industry, since almost all American manufacturers, no matter what they produce, are eligible for a similar deduction.

The following changes wouldn’t apply to Koch Industries, because they engage in refining, not production (again, with the exception of their minor exploration business): increasing the amortization period for geological costs; eliminating percentage depletion for oil and gas wells; passive-loss limitations for “oil and gas properties”; eliminating credits for marginal-well production, tertiary drilling injectants, “enhanced oil recovery”; and expensing “intangible drilling costs.”

Drying up the last deduction, for intangible drilling costs, represents the lion’s share of the savings, at $3.49 billion in 2013, but, again, the allowance is far from a special subsidy for big oil. Expensing of intangible capital investments is also a privilege extended to many other industries, such as Hollywood film production.  

The Democrat Senate has offered another proposal to cut preferences for “big oil”: S.B. 2204, the subtly titled “Repeal Big Oil Tax Subsidies Act.” But there’s an even bigger problem for the Left’s “big oil” narrative about the Kochs: That bill, designed to attack “big oil” companies, wouldn’t apply to Koch Industries at all. That’s because it does as follows:

Limits or repeals certain tax benefits for major integrated oil companies (defined as companies with annual gross receipts over $1 billion and an average daily worldwide production of crude oil of at least 500,000 barrels)

Koch Industries’ oil-and-gas concerns are almost exclusively in refining, not crude-oil production, and KEC doesn’t drill anything like 500,000 barrels a day.

It seems that Democrats are happy to paint the Kochs as big-oil villains in campaign advertisements, but when it comes to writing legislation that discriminates against a massive American industry, they carefully circumscribe.

Ironically, the Senate’s bill, and many of the president’s proposals, would also extend or expand a variety of credits that would hugely benefit Koch Industries. For instance, one Koch subsidiary, Flint Hills Resources, is one of the country’s largest producers of biofuels. Given Flint’s annual production capacity of 435 million gallons, biofuel subsidies (often around a dollar a gallon) far outstrip anything given to the Kochs’ oil-and-gas interests.

Koch Industries also produces such a range of products that some of them are inevitably subsidized for other environmental reasons — for instance, their subsidiary Georgia-Pacific produces a range of LEED-certified building materials, which are eligible for various energy-efficieny tax credits.

Patrick Brennan was a senior communications official at the Department of Health and Human Services during the Trump administration and is former opinion editor of National Review Online.


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