Tax Incentives For Oil Companies Are Legally Categorized As Tax Expenditures

Joint Committee On Taxation Lists Oil Industry-Specific Tax Incentives As Tax Expenditures. The Congressional Joint Committee on Taxation notes that tax expenditures are defined by law as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” The Committee lists several tax expenditures specific to the oil and gas industry, such as incentives for pipelines, refineries, oil exploration, and oil recovery. [Joint Committee on Taxation, 12/15/10]

Experts Say Tax Expenditures Have Effects Similar To More Direct Subsidies

Tax Policy Center: Tax Breaks “Operate Essentially Like Direct Expenditures” From The Government. From a Tax Policy Center explanation of tax expenditures:

Tax expenditures operate essentially like direct expenditures, even though they appear as tax breaks. They benefit hundreds of different types of activities and individuals and currently account for one-fourth to one-third of all benefits and subsidies granted to the public. [Tax Policy Center, 7/17/09]

Pew Charitable Trusts: Energy Tax Break Effects Are “Similar To Grants Or Other Types Of Subsidies.” From the Pew Charitable Trusts' SubsidyScope.org:

Tax expenditures have a similar effect on the federal deficit as government spending. They can also have effects on recipients that are similar to grants or other types of subsidies. For instance, if the government wants to encourage people to buy solar panels for their homes, it could send checks to those who bought panels or offer tax breaks after the panels have been purchased. [SubsidyScope.org, accessed 4/3/12]

Center For American Progress: “A Tax Expenditure Is A Government Spending Program That Delivers Subsidies Through The Tax Code.” From the Center for American Progress' April 2010 report “America's Hidden Power Bill: Examining Federal Energy Tax Expenditures”:

To reiterate, a tax expenditure is a government spending program that delivers subsidies through the tax code via special tax credits, deductions, exclusions, exemptions, and preferential rates. This reduction in taxes is the amount of the subsidy provided to that individual or company. In the energy sector, this means specific companies receive credits for investing in renewable energy, deductions related to oil exploration, and credits for production of alternative transportation fuels, among other benefits. [Center for American Progress, April 2010]

Grist's David Roberts: Tax Expenditures Are “Entirely Equivalent” To Direct Spending. Grist.org staff writer David Roberts explained how tax incentives and more direct spending are “entirely equivalent in term of both the federal budget and the economic incentive to oil companies”:

Compare the following two simplified scenarios.

A. An oil company pays $1 million a year in taxes. Congress gives it a yearly cash grant of $200,000 to explore for new wells.

B. An oil company pays $1 million a year in taxes. Congress gives it a yearly tax break of $200,000 for exploration expenses.

As you can see, A and B are equivalent. In both cases, the federal government was going to get $1 million a year, but instead will get $800,000. In both cases, the federal government is foregoing $200,000 in revenue in order to favor a particular business or industry.

The first is a simple case of government spending. The second is what's called a “tax expenditure,” i.e., government spending that takes place through the tax code. [Grist.org, 9/23/11]

But Right-Wing Media Follow Big Oil Talking Points And Deny That Oil Companies' Tax Breaks Are Subsidies

American Petroleum Institute: Oil Industry “Receives Not One Subsidy,” Just Tax Breaks. From American Petroleum Institute president and CEO Jack Gerard's prepared statements for a press briefing about energy policy:

We continue to hear about the need to eliminate “subsidies” for the industry. The industry receives not ONE subsidy, and it is one of the largest contributors of revenue to our government of any industry in America. The oil and natural gas industry doesn't get the guaranteed loans made famous by the Solyndra affair, for example. It takes tax deductions the same or similar to what all other American companies get to recover their costs of doing business. [American Petroleum Institute, 2/23/12]

Fox's Eric Bolling: Obama Is “Completely Off Base” For Calling Oil Company Tax Breaks Subsidies. From the Fox Business show Cavuto:

BOLLING: So President Obama -- first of all, he calls the tax credits to the oil company subsidies. This is completely off base. Not one dollar of taxpayer money comes from the government and Congress and is sent to the oil companies. He said that today on the podium, President Obama did. He said “we're sending -- Congress has decided to send billions more dollars to the oil companies.”

We're not doing that. We're allowing them to keep more of their profits. Profit is a good thing. Profit is capitalism. Profit creates jobs, creates incentives for the oil companies to hire more people, to buy more equipment and guess what, to drill more money. So let them keep their $3 or $4 billion. [Fox Business, Cavuto, 3/29/12]

Fox's Stuart Varney: Obama “Is Confusing Everybody With His Use Of The Word 'Subsidy.'” From Fox & Friends:

VARNEY: Since when do we have taxpayer giveaways to the oil companies? Show me the check, Mr. President. Show me the check. All companies in America, when they invest in equipment, get a tax break on that investment, the oil companies included. The president says that is a subsidy; it is not. It is not a payment of money from the Treasury to an oil company.

I mean, do you get a payment from the Treasury when you have a break on your mortgage, on your interest? Of course you don't. He is confusing everybody with his use of the word “subsidy.” [Fox News, Fox & Friends, 3/30/12]

Limbaugh: It's A “Blatant Lie” That Oil Company Tax Breaks Are Subsidies. From Rush Limbaugh's radio show:

LIMBAUGH: By the way, they don't get subsidized. Folks, this is another blatant lie. It is a blatant lie about tax subsidies. Big Oil does not get subsidized. They have tax breaks like many other industries do, just like you have a home mortgage interest deduction. And the tax breaks they have are to incentivize their production and exploration for oil. Their tax breaks are not to cause you to pay higher gas prices, their tax breaks are there to facilitate more supply and thus cheaper prices. [Premiere Radio Networks, The Rush Limbaugh Show, 3/29/12]

Fox's Shannon Bream: “There Is A Difference” Between Oil Company Tax Breaks And Subsidies. From Fox News' Special Report:

BREAM (guest host): And to be clear, the vote in the Senate today was about a bill from Senator Menendez and it would have cut tax breaks, which the White House refers to as subsidies. But really, there is a difference, Juan.

JUAN WILLIAMS (Fox News contributor): There is a difference. But you know, the tax breaks are meant to incentivize oil production. And the oil companies make this point and that they need these and say that prices would go up without these incentives. Nonetheless, the money comes out of my pocket, your pocket, the American taxpayers' money, and that's why the White House calls them subsidies.

BREAM: But is it coming out of the oil companies' pockets? I mean, it's less money that they're paying in to the tax base.

WILLIAMS: Correct. Well, it's a deduction, a loophole, however you want to describe it. [Fox News, Special Report, 3/29/12]

Tax Incentives Make Up Much Of The Government's Energy Policy

Energy Information Administration: For Decades, The Tax Code Has Been Used To Support Energy Policies. From the Energy Information Administration's report “Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010”:

For several decades, policies in the federal budget affecting energy production have largely been exercised through the Internal Revenue Code (Tax Code or IRC). Recently, in order to inject funds more quickly into a weak economy, ARRA made more prominent use of direct spending. This was done with the intention of providing capital to investors with little or no taxable income to offset during the financial crisis. [Energy Information Administration, July 2011]

Pew Charitable Trusts: Federal Government “Heavily Relies On The Tax Code” For Energy Policies. From the Pew Charitable Trusts' SubsidyScope.org:

The federal government heavily relies on the tax code to implement policy in the energy sector. In fiscal year 2009, the estimated revenue loss in the sector from tax expenditures totaled nearly $6.3 billion. Tax expenditures are government revenue losses resulting from provisions in the tax code that allow a taxpayer or business to reduce their tax burden by taking certain deductions, exemptions, exclusions, preferential rates, deferrals or credits. [SubsidyScope.org, accessed 4/3/12]

And The Oil And Gas Industry Receives Several Types Of Tax Incentives

Energy Information Administration: Oil And Gas Tax Expenditures Increased During 2007 - 2010 Period. The Energy Information Administration has identified nine tax expenditures used by oil and gas companies, which increased in cost from $1.9 billion in fiscal year 2007 to $2.7 billion in fiscal year 2010:

[Energy Information Administration, July 2011]

Congressional Research Service: “There Are A Number Of Tax Incentives” For Oil Companies. From the Congressional Research Service's April 2011 report on energy tax policy:

There are a number of tax incentives currently available for energy production using fossil fuels. They can be broadly categorized as either enhancing capital cost recovery or subsidizing extraction of high-cost fossil fuels. Between 2010 and 2014, the total cost of tax expenditures related to fossil fuels is estimated to be $12.2 billion. [Congressional Research Service, 4/14/11]

NY Times: “Oil Production Is Among The Most Heavily Subsidized Businesses.” The New York Times reported in July 2010 that “an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.” [The New York Times, 7/3/10]

Taxpayers For Common Sense: Industry Will “Receive More Than $78 Billion” In Subsidies In The Next 5 Years. A report from the fiscal watchdog organization Taxpayers For Common Sense estimated that oil and gas companies will receive “more than $78 billion” in subsidies, including $55 billion in industry specific subsidies:

During World War I, U.S. taxpayers provided the oil and gas industry with its first federal tax break. Over the decades, more lucrative tax breaks have been added. The latest major installment came with the passage of the 2005 Energy Policy Act, which included another $2.6 billion in subsidies for oil & gas companies. But it hasn't stopped there. As recently as December of 2011, oil and gas companies received more subsidies. Each year the oil and gas industry takes advantage of tax breaks and other subsidies worth billions of dollars. In all, oil and gas companies are expected to receive more than $78 billion in industry specific and general business subsidies over the next five years. [Taxpayers For Common Sense, May 2011, emphasis in original]