There are frequent claims that the government is subsidizing the oil industry, but rarely does anyone actually attempt to describe what the subsidy is and how it is given to the oil industry. The oil industry gets four tax breaks, the domestic manufacturing break of $1.7 billion, the oil depletion break of $1 billion, the foreign tax credit of $0.85 billion, and the intangible drilling costs break of $0.78 billion. The first three tax breaks are given to every manufacturing company whether in the oil and gas industry or not. The oil depletion allowance is the equivalent of the depreciation of capital equipment, which is reasonable. The intangible drilling cost write-off allows drilling costs to be written off in the first year rather than over the entire time of the investment. This is probably most important to the very many small drilling companies and it is the only tax break really unique to the oil and gas industry.Merrill Matthews recently had an Opinion piece in the Wall Street Journal entitled About Those Tax Breaks for Big Oil... which notes how a bill submitted to the House of Representatives by the socialist Chris Van Hollen of Maryland is forced to insert special language aimed at the oil and gas industry to exclude that targeted industry from the same tax breaks or options held by and used by many other industries. Van Hollen's bill is the Stop the Sequester Job Loss Now Act and would increase tax rates on higher income individuals (soak the rich) and increase taxes on the oil and gas industry which has been doing yeoman work in keeping the economy from complete collapse.
In the best tradition of the Democrat Socialist Party the bill pretending to end job loss will actually increase job loss by depriving small business owners and investors of the money and incentive they need to hire people and by hobble the oil and gas industry which is one of the few job bright spots in our economy. In Democrat Socialist logic, it is OK to blow away both feet as long as the bill that will do this has a title implying that it will put great shoes on both feet. Upon passage of the bill and with its exercise, the people eventually have no feet and no great shoes. The Democrat Socialists will then claim that is because of some fictional deregulation.
Matthews points out that the oil and gas industry reputed to be unfairly taxed (to Democrats this always means under-taxed) includes the two companies at the top of the company list of the biggest taxpayers, as well as the sixth biggest taxpayer. Exxon Mobil paid $31 billion of U.S. income taxes in 2012. Chevron paid $20 billion and ConocoPhillips paid $8 billion of U.S. income taxes in 2012. These three oil and gas companies paid more U.S. income taxes than did the remaining 7 companies in the top 10 list. They did so using the same tax rules used by other industries.
So how does Van Hollen target the oil and gas industry? His act
- limits the Section 199 deduction which sought to encourage domestic production activities in the American Job Creation Act of 2004. This gave domestic manufacturers a 9% tax deduction from net income, except for the oil and gas industry, which only receives a 6% tax deduction because the Democrats have a vendetta against oil and gas. So, the oil and gas industry gets less of a tax break than other U.S. manufacturers on this!
- denies the industry the use of the accounting method for inventory known as last-in, first-out or Lifo, which is widely used by all extraction industries. It will remain an available choice for all industries except the oil and gas industry.
- denies only integrated oil and gas companies the deduction for many of the taxes they pay to foreign countries. To avoid double taxation, all companies are allowed a credit for the taxes they pay to foreign countries. Now, however, the integrated oil and gas companies would not be allowed to deduct the royalty payments they make to foreign countries, though other companies will continue to deduct royalties.