Paul Driessen

Every American manufacturing company gets tax deductions that help it create jobs and strengthen our economy – whether it produces newspapers, furniture, cars or fuel. Eliminating those deductions would increase unemployment and further slow our nation’s desperately needed economic recovery.

Yet that is precisely what President Obama wants to do when oil companies want to use the deductions. It is one of many ways the Obama administration is undermining the oil industry and 9.2 million Americans whose jobs it supports. It is part of the administration’s strategy for replacing fossil fuels with heavily subsidized “alternatives” that taxpayers cannot afford, and consumers will not purchase on their own.

Newspapers that benefit from the same genre of tax deductions as oil companies nevertheless sometimes join attacking the oil industry, and the jobs and benefits it creates. This is rank hypocrisy.

“If Republicans are truly determined to slash the budget and end government waste,” the New York Times editorialized, “they will start [by] ending the web of tax breaks enjoyed by the rolling-in-dough oil industry and terminating the ethanol subsidy. Together these cuts would save up to $100 billion over 10 years.”

The Times is right about ending ethanol subsidies. But it and other “progressives” are wrong on every other argument they present to justify their job-killing, economy-crippling energy agenda.

1) Oil industry tax deductions cover costs incurred in exploration, drilling, production, transportation and refining. They aren’t subsidies or special tax breaks. They are essentially the same deductions claimed by all manufacturers, in conducting their business under our complex tax code. They ensure that businesses recover their costs and get taxed only on net income, in the process of making essential products.

Refineries and petrochemical manufacturers play an especially vital role in the oil industry – transforming crude oil and natural gas into fuels and raw materials used to make fabrics, plastics, pharmaceuticals, cosmetics, fertilizers, carpets, paints, roofing, siding, and myriad other products that improve and safeguard our lives. Solar panels and resins for fiberglass wind turbine blades are also petroleum-based.

The NY Times itself enjoys similar tax breaks, and hasn’t offered to give one of them up, to help end government waste. Nor have other newspapers, some of which have even sought to benefit under the “failing newspaper act,” which would let them operate as “educational nonprofits,” and pay no taxes. Others have sought exemptions from antitrust laws, so that they can set online subscription prices.

In truth, in this internet and online media age, we could live without newspapers. But as an American Express advertising executive might say, Oil: You can't leave home without it. Nor can you have modern civilization or improved health and living standards without it.

2) Most petroleum companies aren’t “Big Oil.” They’re small independents. And the entire industry operates under government policies and regulations that keep many of America’s best oil and gas prospects off limits and make leasing, exploration and drilling needlessly expensive and time-consuming. Between 1981 and 2008, the largest consolidated oil companies (“Big Oil”) alone paid $1.95 trillion in severance, property, excise, sales and corporate income taxes, the Tax Foundation reports.

Eliminate the tax deductions amid the current regulatory and political climate, and fewer wells will be drilled, fewer deposits will be profitable enough to develop, fields will be abandoned prematurely, royalty revenues will decline, refineries will close or move overseas, workers will lose their jobs, their income tax payments will morph into welfare checks, and we will import still more oil and refined products.

3) A primary reason oil and gasoline prices are so high, unemployment is stuck at 9% and our economic growth is anemic is that government has made most of our western states, Alaskan and Outer Continental Shelf energy prospects off limits. It raises unfounded concerns about hydraulic fracturing, and drags its feet on permits for lands that supposedly are “available” for leasing and drilling. In short, it chokes off supplies. Meanwhile, politicians stoke demand – with legislation like the NAT GAS Act. That bill would obligate US taxpayers to pony up some $14 billion annually in subsidies (aka, tax credits and rebates), to encourage motorists to buy natural gas-fueled cars and trucks, and service stations to install natural gas fueling stations.

Eliminate oil company tax deductions: “save” $4 billion. Subsidize car and truck purchases: spend $14 billion. It’s unsustainable. It’s insane.

4) Real subsidies take money taken from society’s productive sectors, and transfer it to legislators and bureaucrats, who give it to companies that “deserve” funding, because they provide politically favored products or could not remain in business without perpetual infusions of Other People’s Money. You support our reelection, our “catastrophic manmade global warming” thesis and our commitment to a renewable energy future, and you’ll continue receiving taxpayer cash – until the OPM runs out.

Evergreen Solar received $486 million in federal and state subsidies – but still closed its doors and fired 850 workers, when the subsidy well ran dry. The same thing happened to five of six solar companies in Germany. The jobs went to China and Malaysia, which have lower costs and fewer regulations.

5) Even with subsidies, wind and solar still can’t compete, unless they are also exempted from endangered species and other environmental laws. If you shoot an eagle, or birds die in an uncovered oil company waste pit, fines and possibly prison terms are meted out. But wind farms slaughter bald and golden eagles, falcons, hawks, curlews, bats and other threatened, endangered and just plain majestic sky dwellers with no consequences. They even get fast-tracked through the environmental review process by the same Interior Department and EPA that routinely delay or deny oil and gas applications.

6) Then there’s ethanol. Producing 13.2 billion gallons of it in 2010 required one-quarter of all the corn grown in the United States – monopolizing 23 million acres (Grade A cropland the size of Indiana) and consuming 1.2 trillion gallons of water, along with prodigious amounts of petroleum in the form of fertilizer and tractor, truck and distillery fuel. While corn growers get rich, higher corn prices mean pork and chicken producers pay more for feed, meat producers are driven out of business, manufacturers pay more for corn syrup, consumers pay more for food, and more jobs disappear.

America could produce far more gasoline from a mere 2,000 acres in the Arctic National Wildlife Refuge (1/20 of Washington, DC), if anti-oil zealots would end their opposition to drilling in the frozen tundra.

And still ethanol enjoys fuel pump mandates, $6 billion in annual subsidies, and tariffs against foreign competition – so that consumers can “choose” a fuel that gets a third fewer miles per gallon than gasoline.

Meanwhile, the Defense Department is doing a theirs-not-to-reason-why Light Brigade charge into the jaws of biofuel R&D – and extolling the virtues of camellia-based jet fuel that costs $67 a gallon, versus $5 per gallon for aviation gas that could also come from ANWR, the OCS and other off-limits US lands.

The bottom line is simple. The worst thing we can do is what President Obama is intent on doing: use the mythical revenues he expects from eliminating oil company “subsidies and tax breaks” to increase federal wind, solar and ethanol subsidies by another 50% (to $18 billion a year) – so as to “foster the clean energy economy of the future and reduce our reliance on fossil fuels that contribute to climate change.”

As should be abundantly clear by now, these energy sources are not so clean or eco-friendly. They can’t exist without perpetual subsidies. They are simply not sustainable. To provide reliable, affordable, ecological, sustainable energy … put people back to work … rejuvenate our economy … and generate trillions in new government revenue – we need to do three things.

Open America’s public lands for responsible hydrocarbon development. Take the boot off the neck of American businesses. And get rid of all the subsidies, bailouts, targeted tax breaks, selective tariffs, mandates to purchase ethanol and other products, and other corporate welfare gimmicks that make tax lawyers and lobbyists more important than researchers, trained workers and top-flight CEOs.


Paul Driessen

Paul Driessen is senior policy adviser for the Committee For A Constructive Tomorrow (CFACT), which is sponsoring the All Pain No Gain petition against global-warming hype. He also is a senior policy adviser to the Congress of Racial Equality and author of Eco-Imperialism: Green Power - Black Death.

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