The next time you hear President Obama beating up on oil companies and crusading to wipe out what he calls the industry’s “tax breaks,” don’t be fooled: He’s telling a lie.
Recently at the White House, Obama unleashed some of his most aggressive rhetoric yet on the subject, telling Congress that it can “stand with big oil companies or . . . the American people.”
“I think it’s time [oil companies] got by without more help from taxpayers,” the president added.
Only days before that, Senate Democrats had introduced a measure to raise the tax burden on oil companies dramatically, while creating credits for so-called renewables. The legislation narrowly missed the 60 votes needed to advance. But it’s crystal clear that the Democratic Party, from the top down, is committed to turning anti-oil rhetoric into policy
But again, the sales pitch is based on a giant distortion — a lie. Obama and the Democrats talk about huge “subsidies” — as if taxpayers are signing billion-dollar checks to oil and gas companies. But oil companies don’t get subsidies. Rather, like every other business, they’re allowed to take tax deductions for the expenses they incur.
A tax deduction and a government subsidy aren’t the same. When politicians use the terms interchangeably, it misleads many Americans.
Oil-company tax deductions aren’t special favors. They are the standard relief afforded manufacturers, mining companies and other businesses to help recognize the costs of operations. Oil companies can deduct their expenses for things like equipment purchases and rig-technicians’ salaries. The point of these deductions — as for any other industry or individual — is to ensure taxes are only levied on income after expenses.
Oil companies can also deduct expenses related to exploration or development. The idea there is to provide an incentive to take on the often substantial risk of seeking new energy sources. When these efforts succeed, the energy market expands, prices drop and America moves that much closer to energy independence.
But even these deductions aren’t unique to energy companies. Many provisions in the tax code seek to encourage certain kinds of behavior. Mortgage deductions reward home ownership. Special tax benefits promote savings in individual retirement accounts or 401(k)s.
Overall, the oil and natural-gas industries claim about $2.8 billion a year in tax deductions. Yet that’s a tiny price to pay for the huge benefits the sector generates for the economy.
Over the last five years, through the thick of the recession, the oil and natural-gas industries have added 160,000 jobs. These firms now employ more than 9 million people. And 2011 saw higher domestic oil production for the third year in a row.
Now, some energy-sector players do get federal subsidies, and they’re massive. They’re the “alternative-energy” companies the White House is so fond of. The wind and solar sectors alone take in $12.5 billion annually in direct subsidies.
Initially, this vast government support was justified on the grounds that “clean tech” was an infant industry that needed help to start competing with traditional energy sources. But we’re now years into shelling out tens of billions in taxpayer dollars — in return for little in innovation or self-sustaining jobs.
Today, each solar-energy megawatt is produced with a stunning $776 in investment- and production-tax credits. For wind power, it’s $56 a megawatt. That’s a huge public expenditure for not much energy production. The tax incentives for fossil fuels amount to a mere 64 cents per megawatt.
Worse, despite the public largess, some clean-tech companies have such flawed business models that they’ve already gone under. Solyndra, the solar-panel manufacturer that went belly up last year, left US taxpayers on the hook for half a billion dollars in unpaid loans. Among other costly bankruptcies was Beacon Power, an electricity-grid utility company that folded in October.
Bottom line: Oil and natural gas companies aren’t subsidized — they’re merely benefiting from the same, reasonable cost-of-operation deductions afforded to all kinds of industries.
The real subsidies — and the real scandal — are to be found in “renewable” energy, which has taken in tens of billions in direct government payments over the last few years but has little to show for it.
Bernard L. Weinstein is associate director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business and a George W. Bush Institute fellow.