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Oil Company “Subsidies” Clarified (It depends on what the word : "Subsidy" means)
Hotair ^ | 05/03/2011 | Jazz Shaw

Posted on 05/03/2011 7:18:26 AM PDT by SeekAndFind

We’re still seeing a flood of calls from both sides of the aisle to cut subsidies as part of an overall strategy to reduce spending in Washington. While there is plenty available to cut, there has been a steady and disingenuous conflation being promoted by the White House which seeks to describe certain tax benefits received by companies in all manner of industries as “subsidies for big oil.” Just last week Tim Pawlenty was taking to the stump in an attempt to call out these warped descriptions.

MANCHESTER, N.H. – Former Minnesota Gov. Tim Pawlenty called a White House proposal to reduced tax breaks for oil companies “ludicrous” after a gathering of tea party activists.

“I think we should have a discussion about all subsidies,” Mr. Pawlenty told Washington Wire at a forum for 2012 GOP presidential hopefuls. “But the Obama proposal is ludicrous. I mean the worst thing we could do is raise the cost burden on costs on energy and oil… What he’s proposing is a tax increase on energy at a time when the gas is $4 a gallon. It’s preposterous.”

For those seeking to sort out the definitions of the terms being used, the American Petroleum Institute has published a new paper doing just that.

Contrary to what some in politics and the media have said, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Since its inception, the US tax code has allowed corporate tax payers the ability to recover costs and to be taxed only on net income. These cost recovery mechanisms, also known in policy circles as “tax expenditures”, should in no way be confused with “subsidies”, i.e., direct government spending.

Here are a few of the items which are being incorrectly identified as “subsidies” inside the beltway:

Intangible Drilling Costs – Companies which engage purely in energy exploration and discovery can recover their costs related to exploration at tax time at a rate of 100%. This lessens the burden on energy providers for the number of “dry holes” which may be found in the process. Integrated companies (i.e. “big oil”) can recover these exploration costs at 70%. Not a subsidy.

Domestic Manufacturer’s Deduction (Section 199) – A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S. The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.

Percentage Depletion – The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. This depletion method is not available to companies that produce oil as well as refine and market it (i.e. “Big Oil”.) This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.

There are more, so download the paper and read them for yourself. Then, when you hear your congressman talking about all of the “subsidies” for big oil, you can set them straight based on the facts.

To be clear, the federal government does engage in the handing out of a lot of actual subsidies, including those for ethanol and a variety of wasteful programs which are essentially failures on their own merit without feeding off the teat of Uncle Sam. And we should certainly be looking at those areas as way to address cost cutting. But trying to depict tax credits used by the energy industry – in the same fashion as every other industry – as some sort of special love festival for Big Oil is dishonest.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: oilsubsidies; subsidies; subsidy; taxbreaks

1 posted on 05/03/2011 7:18:29 AM PDT by SeekAndFind
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To: SeekAndFind

If one doesn’t like it, it’s a “subsidy”. If one likes it, it’s an “investment”.


2 posted on 05/03/2011 7:26:20 AM PDT by jjotto ("Ya could look it up!")
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To: SeekAndFind
The problem is that the oil companies and other companies, want a 1000% return. Which is BS, let them have skin in the game . Capping depletion and depreciation is not going to kill anyone.
3 posted on 05/03/2011 7:26:46 AM PDT by org.whodat
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To: jjotto

It also depends on if you are an elitist who sees all wealth as collectively owned by society and under the control of the ruling class,

or you are an individualist who sees individuals’ wealth as something earned by the individual and under his own control.


4 posted on 05/03/2011 7:29:04 AM PDT by MrB (The difference between a Humanist and a Satanist - the latter knows whom he's working for)
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To: MrB

Domestic manufacturing tax deduction — $1.7 B. This is a tax deduction given to every manufacturer in the US. Per CNN, it was “designed to keep factories in the United States.” If that deduction were eliminated for oil companies only, it would mean singling out oil companies from all other manufacturers.


5 posted on 05/03/2011 7:37:19 AM PDT by scooby321
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To: org.whodat
The problem is that the oil companies and other companies, want a 1000% return.

"Big Oil" companies are getting about a 3% to 4% return on investment and return on sales. That won't attract much more investment from anybody. And you think further reducing that return by capping depletion and depreciation is a good idea?

6 posted on 05/03/2011 7:37:39 AM PDT by VRWCmember
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To: SeekAndFind

I think we need to take the Domestic Manufacturer’s Deduction and expand it to a greater deduction if that energy is refined, and a further deduction if sold in the U.S.


7 posted on 05/03/2011 7:46:41 AM PDT by Free Vulcan (Vote Republican! You can vote Democrat when you're dead.)
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To: SeekAndFind
Just like class warfare sponsored by the RAT party, no amount of clarification is going to change the minds of the libtards who HATE CAPITALISM. Their messiah in the WH is supposed to be TRANSFORMING America into a European socialist style state.
8 posted on 05/03/2011 7:47:51 AM PDT by Cheerio (Barry Hussein Soetoro-0bama=The Complete Destruction of American Capitalism)
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To: SeekAndFind

Like I said before, oil companies and other companies on Obama’s enemy list should start posting profits in two ways, first in Obama dollars and then in BOD, before Obama dollars, just to clarify the situation.


9 posted on 05/03/2011 7:51:54 AM PDT by Eva
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To: VRWCmember

Somewhere in all of my desk drawers is a diploma, on it says I are an accountant, My second major. Don’t give me that Razzle Dazzle return on investment BS, I can make it say what I want to within reason.


10 posted on 05/03/2011 8:26:54 AM PDT by org.whodat
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To: org.whodat
The problem is that the oil companies and other companies, want a 1000% return.

And the oil and gas industry, while it may desire a 1000% return, actually manages to realize 5% to 10%.

Which is BS, let them have skin in the game.

Spoken in the manner of an ill-informed observer who has no concept of dry hole costs.

Capping depletion and depreciation is not going to kill anyone.

Well, nobody who is exploring internationally, anyway, which is all the majors. Such measures will not apply to projects elsewhere in the world. It will, however, serve as a severe disincentive to domestic exploration, the vast majority of which is conducted by independents.

I'm guessing your understanding of the domestic E & P business extends to the certainty that there is a big, black hose running from Saudi Arabia to your gas tank. ;-)
11 posted on 05/03/2011 8:35:22 AM PDT by Milton Miteybad (I am Jim Thompson. {Really.})
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To: org.whodat

Well if you’ve ever taken an accounting class or a finance class, then you should have realized how igorant your statement about companies wanting a 1000% return was.


12 posted on 05/03/2011 8:40:25 AM PDT by VRWCmember
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To: VRWCmember

Wrong, they employ people on k street for the sole purpose of making money, they like rules that prevent completion and crony capitalism is the game. You can not spend the trillions of dollars that the republicans and democraps want to spend and say put it on someone else credit card. And a hyperbole statement is just, what it is, sorry you do not know what one is..


13 posted on 05/03/2011 8:54:15 AM PDT by org.whodat
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To: VRWCmember

Hyperbole :: A figure of speech (a form of irony) in for emphasis or effect; an extravagant statement. Sorry about your shortage of understanding. that is 1000%!!!


14 posted on 05/03/2011 9:33:35 AM PDT by org.whodat
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To: VRWCmember

Hyperbole :: A figure of speech (a form of irony) in for emphasis or effect; an extravagant statement. Sorry about your shortage of understanding. that is 1000%!!!


15 posted on 05/03/2011 9:33:56 AM PDT by org.whodat
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To: org.whodat
And a hyperbole statement is just, what it is, sorry you do not know what one is..

So the "let 'em have skin in the game" was also hyperbole? And the part about eliminating their depreciation and other tax deductible expenses was also hyperbole? Was there any part at all of your statement that wasn't hyperbole?

16 posted on 05/03/2011 10:53:58 AM PDT by VRWCmember
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To: Milton Miteybad

Apparently you and I are not nuanced enough to understand the bigger points that were being made by the use of hyperbole.


17 posted on 05/03/2011 10:56:05 AM PDT by VRWCmember
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To: VRWCmember

You have a problem, the 1000% was, the other is dead on. I support the flat tax, you make money, you invest money, you pay taxes. You take from this country you give to this country no free rides.


18 posted on 05/03/2011 10:58:07 AM PDT by org.whodat
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To: org.whodat

So you think that oil companies have no skin in the game under the current tax rules? You think that cost recovery of depreciation and similar expenses should not be deducted when calculating taxable income?


19 posted on 05/03/2011 11:06:43 AM PDT by VRWCmember
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To: org.whodat
Sweetie Pie, the depletion deduction is not an investment. This is not money given from the government to the oil company. It is a deduction because the value of your asset is worth less(depleted). You'd think an accountant such as yourself would realize that.

I own mineral rights to a piece of land that one of the 'big oil' guys is pumping from. Since I am the landowner, I get the deduction. I make about 100/month on my oil lease, and can deduct about 15% of that because my land is worth less with the oil gone. Removing the deduction is a tax increase. How is increasing taxes going to lower gas prices, exactly? Dahlin?

20 posted on 05/03/2011 11:15:39 AM PDT by sportutegrl
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To: VRWCmember
Recovering the total and then you keep writing it off on some made up balance should be stopped, maybe we should make it retro active for the past ten years. And when you write off your total investment how do you have a return on your investment, when you have recaptured the entire amount ++++.
21 posted on 05/03/2011 11:16:16 AM PDT by org.whodat
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To: VRWCmember
Apparently you and I are not nuanced enough to understand the bigger points that were being made by the use of hyperbole.

Apparently not. There's thirty years of independent E & P experience down the drain, I guess. All for naught.

If only I had taken the time to learn about the oil and gas industry from some guy on the internet who has an accounting degree stuck in his sock drawer...
22 posted on 05/03/2011 11:17:07 AM PDT by Milton Miteybad (I am Jim Thompson. {Really.})
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23 posted on 05/03/2011 11:27:45 AM PDT by TheOldLady (Almost as evil as the Freeper Criminal Mastermind)
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To: sportutegrl
Honey bun, who get what in a lessee/ landowner, sell are participation agreements are all treated different, depending upon the terms of the agreement. All of which has nothing to do with what i said.
24 posted on 05/03/2011 11:49:49 AM PDT by org.whodat
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To: SeekAndFind

-——Integrated companies (i.e. “big oil”) can recover these exploration costs at 70%. Not a subsidy.———

This means that expenses are limited. Normal and ordinary business expense is not subject to tax,that is they are deducted.

The oil business is prohibited from such expanse in total...... they are forced to forgo 30% of their expense and be taxed on it. They are thus taxed at a higher rate.

Of course if they establish a separate corporation not subject to the rule there is not a problem.


25 posted on 05/03/2011 11:58:18 AM PDT by bert (K.E. N.P. N.C. D.E. +12 ....( History is a process, not an event ))
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To: org.whodat

You know what. I meant to reply to the guy you were replying to. I clicked on view replies and made a mistake. I give up.


26 posted on 05/03/2011 12:09:46 PM PDT by sportutegrl
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To: SeekAndFind

Let’s have ethanol pimps like T-Paw have a ‘war bond’ type drive to buy biofuel stocks and put their money where their mouths are.

If corngas / biofuels are so wonderful, they should all become overnight millionaires.


27 posted on 05/03/2011 2:54:00 PM PDT by WOBBLY BOB ( "I don't want the majority if we don't stand for something"- Jim Demint)
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To: VRWCmember

Taxes vs Exxon Profit Per Gallon

http://www.dailymarkets.com/economy/2011/04/27/gasoline-taxes-vs-exxon-profit-per-gallon/

http://dailycaller.com/2011/04/25/the-truth-about-americas-oil-gas-companies-part-i/#ixzz1KqO2YdGc


28 posted on 05/03/2011 2:57:17 PM PDT by WOBBLY BOB ( "I don't want the majority if we don't stand for something"- Jim Demint)
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