Time to Cut the Subsidies to Big Oil Companies

Filed in Gather Business News Channel by on May 19, 2011 0 Comments

The United States has over $14 trillion in debt. The Big 5 oil companies are making record-breaking profits. Is it time to cut federal subsidies to big oil companies? According to a recent article in The Huffington Post, the answer is yes.

The companies that make up the Big 5 are ExxonMobil, BP, Shell, Chevron, and ConocoPhillips. They have earned this moniker because they are the largest five petroleum companies that drill, refine, and sell their own petroleum products. They receive an estimated $4 billion a year in subsidies, mostly in the form of tax breaks.

In the first quarter of 2011, the Big 5 reported earnings of over $34 billion. That is a 42 percent increase over 2010, according to the Huffington Post. For 2010, they reported $77 billion in profit, including the loss $3.7 billion loss BP had due to the Gulf of Mexico spill. For the years 2001-2010, the Big 5 reported profits of almost $1 trillion ($952 billion)—all while receiving subsidies from the U.S. government.

Profits are not bad. Record-breaking profits while receiving subsidies out of the taxpayer’s pocket defies logic. According to a report released in February, 2011 by the House of Representatives Natural Resources Committee Democratic Staff Report, two of the subsidies the Big 5 receive have been on the books since 1916 and 1926, when the oil industry was in its infancy.

The “Expensing of IDCs” of 1916 allows oil and gas companies to deduct “intangible drilling costs.” This would include wages and cost of running machinery for drilling, as well as other materials used in the process of building wells. The purpose of this deduction was to encourage oil companies to drill. However, little encouragement is needed with oil at $100/barrel. Other companies can write some of these expenditures off over the life of the property. The difference is oil and gas companies write these off immediately.

The “Excess of Percentage Over Cost Depletion” of 1926 is an accounting method used to calculate capital investments. However, only the oil and gas companies are permitted to use this method, and the total deductions regularly exceed the capital investment to develop a reserve.

By ending these two tax subsidies would raise about $18 billion over the next decade. There are a total of six different tax subsidies that have cost over $190 billion since 1968. George Bush made one of the more damning comments on this subject in 2005, “With oil at more than $50 a barrel, by the way, energy companies do not need taxpayer-funded incentives to explore for oil and gas.”

Cutting the subsidies to the Big 5 oil companies makes sense. The nation is in more debt than ever. The companies are reporting record profits. Oil companies should not receive taxpayer funds.

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