Given the fury directed at BP in Congressional hearings on the Gulf oil spill, you’d think the time was ripe to cut the oil industry’s ridiculous subsidies–amounting to at least $40 billion per decade, according to a well-researched New York Times story over the July 4th weekend. But guess again. The oil industry has kept some of these subsidies for a century through lavish spending on lobbyists, who make their case far outside the lights of the hearing rooms.
Key figures: Oil industry taxpayer subsidies amount to $4 billion a year and the highly profitable industry’s tax rate on capital investment is 9%–probably lower than any other major industry. But the story didn’t even consider another huge industry boondoggle, "royalty relief."
The Times’ $4 billion a year figure doesn’t include billions of dollars in
Gulf of Mexico "royalty relief" that was originally intended to
encourage deep-water drilling in the Gulf of Mexico–drilling like BP’s
exploded well. The idea was that oil extraction royalty payments to the
government would be suspended temporarily to spur development. But due
to government contracting errors by the since-disgraced Minerals and Mining Service and lawsuits by the oil industry, that temporary relief may go on forever. From a 2007 report by the Government Accountability Office:
First, MMS’s failure to include price
thresholds for leases issued in 1998 and 1999 along with current
attempts to renegotiate these leases have created uncertainty about
which leases will ultimately receive relief. MMS estimates that the
failure to include these price thresholds during a period of higher oil
and gas prices could cost up to $10 billion in forgone royalty revenue.
To date, about $1 billion has already been lost. In addition, a recent
lawsuit questions whether MMS has the authority to set price thresholds
for the leases issued from 1996 through 2000. Depending on the outcome
of this litigation, MMS preliminary estimates indicate that this could
result in up to $60 billion in additional forgone royalty revenue. (emphasis added)
So that $4 billion a year is only part of the story. But it’s all coming out of our pockets.
The New York Times story does have some enraging individual tidbits:
When the Deepwater Horizon drilling platform set off the worst oil spill
at sea in American history, it was flying the flag of the Marshall
Islands. Registering there allowed the rig’s owner to significantly
reduce its American taxes.The owner, Transocean,
moved its corporate headquarters from Houston to the Cayman Islands in
1999 and then to Switzerland in 2008, maneuvers that also helped it
avoid taxes.At the same time, BP
was reaping sizable tax benefits from leasing the rig. According to a
letter sent in June to the Senate Finance Committee, the company used a
tax break for the oil industry to write off 70 percent of the rent for
Deepwater Horizon — a deduction of more than $225,000 a day since the
lease began.
The Obama administration has proposed canceling about $3 billion a year of those industry tax breaks, and imposing an oil tax to pay for the BP cleanup and future cleanups. Both proposals face a bleak future in Congress, particularly in the Senate. As the story explains:
Efforts to curtail the tax breaks are likely to face fierce opposition
in Congress; the oil and natural gas industry has spent $340 million on
lobbyists since 2008, according to the nonpartisan Center for
Responsive Politics, which monitors political spending.
That lobbying figure doesn’t include direct political contributions to lawmakers, or the unlimited sums that corporations can now spend directly on elections, thanks to five men on the Supreme Court.
So while the oil industry picks taxpayers’ pockets, it’s spending a fraction of your hard-earned money to make sure the situation doesn’t change, even as the industry’s executives sit in the hot lights stonewalling Congress.