Amount targeted:   $2-4 billion/year  (1/10 of 1% of current tax revenues), 2% of profits
Taxes paid by oil and gas companies:  $90 billion/year
Average profit margin:  Slightly below the average S & P 500 company (Far below Citigroup, Microsoft, Coca-Cola, Procter and Gamble, General Electric...)

Tax principle:  Companies in all industries are allowed to depreciate (deduct for a portion of an asset used up) assets and to deduct expenditures.  Also, they only pay taxes once on profits, deducting as a credit any foreign taxes paid before paying the rest to the US.
Manufacturers, from an earlier 2004-2005 tax law, get a "produce in the USA" allowance of 9% (limited to 6% for oil and gas companies, though); this was passed to keep companies here in the US and not to export so many jobs!

Law targetted tax allowances that are general for companies, but removed them only for oil and gas, further adding another discriminatory tax provision to the tax code.  (Silly?)

The fine line: relocating - Some companies have moved out of the US to save taxes.  We do not know where the break point is that will cause companies to stay here or to spin  off operations into a separately owned foreign-based company. 


Although a tax increase would bring in more money in the short term, they say it ultimately could cause the government to take in fewer dollars by dissuading domestic oil and gas production years into the future.

Focusing on little things and ignoring the big issues - We need a President and representatives that focus on the major, big impact issues, not minor small things. 

This is a political issue, not a true helping of America.


Today, members of Congress have a simple choice to make:  They can stand with the big oil companies, or they can stand with the American people.

[Us against them.  In order for one to win we must take from another, as it is a zero sum game, where we can't have everybody gain and have the whole pie increase in size.  Think about the assumptions and assertions there and whether that is sound thinking - or just the blame game, a game set up to gain political points and not for the purpose of benefitting the people.]


"With record profits and rising production, I'm not worried about the big oil companies," Obama said in the White House Rose Garden. "... I think it's time they got by without more help from taxpayers, who are having a tough enough time paying their bills and filling up their tanks."  [This is the "them and us" tactic, used to garner support and to create an adversary.  Record profits is what are created as a result of business and they aren't "bad".  Price gouging and unfair competition are, but they are not colluding with each other, which is against the law and there have been no such charge.  Their net profit margins on average are slightly lower than the average S & P 500 company!)

Think.  Ask yourself whether the above statement implies:  'They are rich, therefore we should feel fine about taking from them.'  And 'I'm looking out for you, therefore vote for me.'  'Oil prices are too high and I sympathize.' [Note that the expected effect of removing such tax deductions would be likely to increase oil prices.]


Think:  How would raising taxes lower oil prices????

The oil industry already faces a higher marginal tax rate at 41 percent compared to 26 percent for the rest of businesses in Standard & Poor’s 500.

By helping producers weather market fluctuations and invest in technology, tax incentives are supporting an industry that the officials say provides 9.2 million jobs.


The law would have ended:

Oil production's categorization under the tax code as a form of domestic manufacturing eligible for a deduction worth 6% of net income  (Section 199, which allows 9% to other industries; only oil and gas is limited to 6%).

The measure also would have prevented oil companies from claiming foreign royalty payments as a credit against American taxes, and cut the ability of companies to deduct numerous costs associated with the drilling process, potentially disincentizing certain risk taking that benefits exploration and development. .

Repealing the royalty payment credit would be tantamount to double taxation and could cripple American-based operations


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. 

According to the Congressional Research Service, President Obama’s tax hikes on the oil and gas industry proposed in his FY 2012 budget would increase the price of oil and gas for American consumers. (Paper)  A much better policy for taxpayers and consumers would be to define subsidies accurately and then remove all unproductive energy subsidies and keep the productive ones.


"If Republicans continue to stand up for oil companies making record profits, one thing will be obvious: Republicans care less about bringing down gas prices than about helping big oil companies that don't need the help," Reid said.

This is taking advantage of a common logic error:  Making a "logical" statement but based on assertions that are not true - where one attributes to and reads the nefarious motives of the other (adversary).

The Republicans (or anyone who is objective about economics) are accused of standing up for oil companies, for some possible nefarious reason.   No, they are standing up for what they believe is best for a working capitalist system. 

Then he uses the phrase "will be obvious" to clothe the following statement as being the truth (that any simple person can see if he is reasonably intelligent). 

Then he attributes the attitude to Republicans that they couldn't care less, about something that is really hurting you, the public. (Politics of blame to manipulate opinion and division; making the other an enemy.)  To the contrary, Republicans, many independents, and some moderate democrats support our becoming as self-sufficient in oil as possible, thereby dampening things that push prices upwards (such as speculation, since there would be a reliably predictable supply of oil in the US) and bringing more control of our fate and our prices under our control. 


Obama statement:  And when the price of oil goes up, prices at the pump go up, and so do these companies’ profits.  In fact, one analysis shows that every time gas goes up by a penny, these companies usually pocket another $200 million in quarterly profits.  [There is no meaning comparing the price of gas per gallon to the sum total of all operations put together.  More relevant would be the answer to how much the profit per gallon of those companies goes up when the cost of gas to them goes up and the cost to the consumer goes up by a penny.  We have to rely on competition to drive prices down, not government control.  If they were breaking laws then a suit would be brought against them - but there are no suits - only assertions.  At best, this is a naive statement and at worst it is an intentionally misleading and manipulative one - which would rely on the American people not understanding the facts.  A good leader explains and uses facts, not innuendoes, assumptions, unsupported assertions, blame, etc.

There is also an insinuation that large companies are unfairly reaping profits.  But the amount of increased profits are determined to a fair degree by two things:

1.  How well the companies run their businesses
2.  The fact that it is hard for extra competition to enter the industry due to the high costs of capital. 

So, they make more money, not because of some nefarious causes. 

And they also have significant downsides and higher risks than many industries. 

Obama Taking Undeserved Credit For Oil (What is actually true?  Inhibitive?)
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Contents/Links To Energy and Environment 

Opinion pieces that have some substance:

Subsidies are used to economically incentivize the desired result in a particular area.  They can be paid directly or in tax reductions.

A desired result could be:

Security of supply
Encouragement of taking a higher risk to explore and find more supplies, for the common good.

If you stop the subsidies, then the desired results could be lost.

The key question is which subsidies produce the biggest bang for the buck.


Credits for foreign taxes paid  - Allowed to be deducted as an expense of doing business paid outside of the US, rather than double taxing the profits (in the US AND in the foreign land).  If the total income tax for a company to be paid if all the business was in the US were $40 million, but if some of the taxes on profits in foreign lands were $10 million, the company would pay $30 million to the US plus $10 million to other countries for the same total of $40 million.
(i.e.  $40 million computed tax bill minus a credit for $10 million already paid to foreigners leaves $30 million to the US).  Note that if a company had other operating expenses overseas, they would also get to deduct those expenses to determine their net taxable income.

Credit for production of non-conventional fuels - So that the companies will do what the government wants to promote, since production without the credit might be too costly or not done at all.

Oil and gas exploration and development expensing - To encourage more exploration (which has higher risks); otherwise it may be more profitable for companies to simply buy and trade in oil rather than increase the supply.  Of course, companies always get to deduct the costs of items used up in operating their businesses. 

See "What's An Oil And Gas Subsidy?"


When subsidies no longer work or are uneconomical then obviously we want to stop or alter them.  If we want to encourage a greater supply of oil we would continue the subsidy to explore and then develop what is found.  If we want non-conventional fuels to be produced, then we must make them economical and incentivize them, or we do not get the desired behavior and results.  And isn't it fair not to tax profits twice (once in US and once in foreign countries)!


Supply versus demand is always a determinant, which is, if we are dependent on outside sources, something we cannot avoid.  Demand in the world is increasing and prices will go up if production is not increased substantially. 

Plus: Some economists estimate 20 percent of the increase in gasoline prices is due to market speculation likely driven by uncertainty.  Once we provide more of our own oil and the speculators cannot play with limited supply, the speculative effect is eliminated.  (Note that if we produce more oil in the US we are simply displacing the same amount that would have come from foreign sources, so there is no additional climate warming effect.  THEN, we can try to use alternative energy sources as they become economical.)


If they go up, they slow the economy and hurt the budgets of individuals.  Obama has suggested that he would like to drive gasoline prices up to the European prices ($9+ a gallon), so that we would be forced to use more alternative energy sources.  This would have a substantial impact on the standard of living in the US and on reducing economic growth.