Jonah writes, “The subsidies U.S. fossil-fuel companies receive, as a matter of principle, should go (though what counts as a subsidy as opposed to an ‘incentive’ can be a tricky question).”
Trickier still when you consider that many times, when the greens bandy these dollar amounts to and fro, they are including in their calculations tax credits that are given to oil companies to offset tax payments to foreign governments. Unlike most developed countries, the U.S. government taxes its multinationals on their overseas income in addition to the income they make from sales in the United States. Usually these companies also have to pay taxes on that income to the government of whatever country they are operating in. To avoid taxing the same income twice, the U.S. government provides tax credits to offset these foreign income taxes.
The controversy with regard to the oil and gas sector involves the decision to count certain royalties paid to foreign governments as income taxes for the purposes of the tax credit — according to that Environmental Law Institute study cited by Plumer, this is the biggest single subsidy conferred by the U.S. government on the oil industry. Democrats periodically try to change the tax treatment of royalties paid to foreign governments as a way of raising taxes on oil companies, most recently when Sen. Bob Menendez tried to change these rules in the energy bill that just died in the Senate.
I’d consider this a pretty close call, but I’d prefer to spend less time thinking about it and more time questioning the wisdom of a tax system that necessitates such carve-outs. Chris Edwards and Dan Mitchell provide an excellent explanation of the difference between “worldwide” and “territorial” taxation in their book Global Tax Revolution. A territorial system, in which we taxed only income generated in the United States, would obviate the need for these complicated tax credits, simultaneously eliminating what greens see as favoritism toward the oil and gas industry; what our trading partners consider an unfair export subsidy; and what Lou Dobbs and most of the Democratic party call a “tax credit for shipping jobs overseas” (has to do with overseas profits not being taxed until they are “repatriated,” causing many firms simply to reinvest them wherever they earned them).
That Environmental Law Institute study also counts the Low Income Home Energy Assistance Program ($6 billion) and funds spent on carbon-capture research ($2 billion) as subsidies for fossil-fuel companies, even though liberals love the first and the Democrats’ preferred climate-change bill would vastly increase expenditures on the second. When you start to look at everything the greens consider subsidies for fossil fuels, you have to ask a more basic question: Can greens and liberals get along?