What are the facts about those oil “subsidies”?

by Gordon Cooper

From Broader View Weekly, May 26, 2011

It is always interesting to me when I see inconsistencies in a person’s philosophy and selective outrage in their responses to certain issues. Apparently my fellow columnist finds inconsistencies just as interesting. However, a more careful reading of Keith’s column would reveal that the “inconsistencies” in the conservative ranks as it regards the issue of subsidies to the oil industry are not inconsistent at all and are, in fact, aligned with the overall tenets of free market capitalism as Keith suggests we should be in his final sentence.

Before I address Keith’s final sentence, I believe I should address some facts that are not being clearly reported by our media (surprise?) in the coverage of government subsidies in general and the oil industry in particular.

First of all, the bill produced by the Senate, which the sponsors knew would be nothing more than a political exercise to cast a shiny lure toward a fish-brained public who seem too eager to swallow any half-truth about the current bogeyman of the left, was never intended to limit government spending or to lower the price of gas at the pumps. Even some of their own party members realized the bill would have been counterproductive to growing our economy.

“Why are we harming an industry — five large oil and gas companies that work internationally, that employ 9.2 million people in the United States directly?” asked Senator Mary L. Landrieu, Democrat of Louisiana. “Why are we doing it?” http://www.nytimes.com/2011/05/18/us/politics/18congress.html?_r=1&pagewanted=print

The narrow application – it was only aimed at the big five oil companies, namely: BP, Exxon-Mobil, Shell, Chevron and Conoco-Phillips – would have amounted to singling out one specific industry for elimination of tax deductions (they are not really subsidies) that all other manufacturers and industries enjoy.

For example, the bill would have taken away the Domestic Manufacturing Tax Deduction – something every industry receives in an effort to keep factories and jobs in the US. It would have also eliminated the Foreign Tax Credit – again, a tax credit every other company –and individual – receives when they pay taxes to foreign countries, in essence, it would be paying taxes on taxes.

These and the other tax deductions would have only netted $21 Billion to the Federal budget over TEN YEARS – essentially less than the $2 Billion/year President Obama is willing to loan to another oil company to SUBSIDIZE OFFSHORE DRILLING. Yes, that is correct! Obama is proposing that taxpayers subsidize (truly) the oil exploration and drilling off the coast of…BRAZIL! By sending money to a state-owned oil company – Petrobras in Brazil - we see a true subsidy and a true inconsistency!

Now, while we are dealing with facts, I believe it is worthwhile to expose a few forgotten or underreported realities about the oil industry in particular and free market economics in general.

I have long held the opinion that the use of government subsidies – not merely offering tax deductions or tax credits – is a clumsy and inefficient means to regulate the economy. By its very makeup – it must try to portray itself as objective and equitable in its assistance - the government is forced to create a bureaucratic monstrosity and convoluted pathway that sucks the life out of every dollar it distributes, making it a weakened - and sometimes even a diseased - source of revenue for the recipient.

Another reason to oppose subsidies is that industries, like people, will become dependent upon the artificial source of income and once dependent, like the animals in a zoo, they will become incapable of procuring necessary nutrition on their own. We have seen this in agricultural subsidies, educational subsidies and other price and/or market controls.

When we pull up to the gas pumps and watch those dollars fly by a rate four times faster than the gallons it is easy to aim our anger toward the name of the big oil company on the sign. So, what should we do about it?

Well, I suppose we could start our own oil company. Of course, that would take a lot of money. Just to get the permits and weave our way through the jungle of environmental regulations would require a team of lawyers and engineers working around the clock, then we would have equipment costs and research and development and I suppose we would eventually have to hire employees and supply them with incentives such as health care and after all that we would need to spend some money on advertising and then we would finally have to pay more than our fair share of corporate taxes - oil companies pay an average (as a share of net income before taxes) of 41.1% compared to 26.5% for other S&P industries – and then we would have to pay royalties and lease payments to the federal government or private landowners – oil companies have paid more than $100 Billion to the federal government since 2000, or over $85 Million/day!

Or we could just pay the $4.00/gallon and be thankful we have a free market system (for now) that keeps us away from the price paid by drivers in London or Germany (well over $8/gallon) where the governments try to manipulate more people to depend on the public transportation treadmill and take away consumer choice.