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Morning Bell: The Truth Behind Oil Subsidies

Posted By Mike Brownfield On May 13, 2011 @ 9:23 am In Energy | Comments Disabled

It’s easy to take shots at oil companies, especially when gas prices are rising over $4 per gallon. Playing the role of David against an enormous corporate Goliath is a great way to score political points, so it’s no wonder that President Barack Obama and liberals in Congress have issued a clarion call for the end to oil subsidies [1] as a way of wreaking revenge against those they say are responsible for the high cost of energy.

The truth, though, isn’t as simple as the good-versus evil fable the left would have you believe.

On Wednesday, five Democratic U.S. senators sent a letter [2] to the CEOs of the country’s five largest oil companies declaring, ”[I]f we are truly serious about cutting our deficit, it is imperative that we start by getting rid of wasteful and ineffective corporate subsidies that have outlived their usefulness.”

The left’s anti-subsidy rhetoric is right on. Ending all energy subsidies, including those for oil and gas, would be good for American taxpayers and consumers. But if those senators were truly serious about cutting the deficit, they wouldn’t stop at just cutting subsidies for oil companies. They would also call for the elimination of subsidies for the president’s pet projects such as renewable fuels, electric vehicles, wind and solar. Throw in clean coal and natural gas, too. That would be the right move for the American taxpayers. But good policy isn’t their goal – vilifying an industry is their end game.

There’s another problem with the left’s crusade against the oil industry. The Heritage Foundation’s Nicolas Loris and Curtis Dubay explain [3] that the broad calls for an end to oil subsidies is really code for targeted tax hikes against companies they don’t like:

The President overreaches on what truly is a subsidy for oil and ignores the fact that the government does far more to hurt oil production than help it. He singles out the oil industry, which already faces a higher marginal tax rate at 41 percent compared to 26 percent for the rest of businesses in Standard & Poor’s 500.

To make matters worse, the tax hikes on the oil and gas industry proposed in the president’s fiscal year 2012 budget would increase the price of oil and gas for American consumers, according to the Congressional Research Service [4]. Loris and Dubay conclude [5]:

Ending all energy subsidies, including those for oil and gas, would be good for American taxpayers and consumers. However, Congress should not punish the oil and gas industry with targeted tax hikes, nor should it reward other parts of the energy industry favored by the Administration.

There’s much the president and Congress could do [6] if they truly wanted to give Americans a break at the gas pump. For starters, they could provide access to our country’s domestic energy reserves, roll back regulatory burdens on companies and lift the de facto moratorium on offshore drilling permits.

Attacking the oil industry might satisfy the left’s bloodlust against corporate America, and it might play well in press conferences. But targeted tax hikes against industries one might not like is not an answer to the high price of gas. It might feel good in the short run, but it’s not a long-term solution to America’s energy problems.

Quick Hits:


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/05/13/morning-bell-the-truth-behind-oil-subsidies/

URLs in this post:

[1] clarion call for the end to oil subsidies: http://blogs.abcnews.com/thenote/2011/05/senate-dems-call-for-end-of-tax-breaks-for-big-oil-pledge-savings-to-reduce-deficit.html#tp

[2] letter: http://stabenow.senate.gov/?p=press_release&id=330

[3] explain: http://heritage.org/Research/Reports/2011/05/Whats-an-Oil-Subsidy

[4] Congressional Research Service: http://www.nationalaglawcenter.org/assets/crs/R41669.pdf

[5] conclude: http://www.heritage.org/Research/Reports/2011/05/Whats-an-Oil-Subsidy

[6] much the president and Congress could do: http://www.foundry.org/2011/03/12/a-little-less-talk-a-little-more-action-on-gas-prices/

[7] killed 80 people: http://www.voanews.com/english/news/asia/south/Taliban-Revenge-Bombing-Kills-Scores-in-Pakistan-121765159.html

[8] August 2 deadline to raise the federal debt ceiling is meaningless: http://online.wsj.com/article/SB10001424052748704681904576319631004754242.html?mod=WSJ_hp_LEFTTopStories

[9] financial health of Medicare and Social Security: http://www.reuters.com/article/2011/05/13/us-usa-budget-medicare-idUSTRE7443Q320110513?feedType=RSS&feedName=domesticNews

[10] considering whether to raise automobile fuel efficiency standards to 62 miles per gallon: http://www.washingtonpost.com/business/economy/obama-administration-set-to-raise-fuel-efficiency-standards-but-by-how-much/2011/05/09/AFQsJ00G_story.html?hpid=z3

[11] lost a whopping $2.2 billion last quarter: http://www.foundry.org/2011/05/12/usps-loses-another-2-2-billion-what-congress-can-do/

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