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 hes proposing is a tax increase on energy at a time when the gas is $4 a gallon. Its 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 Manufacturers 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.
If one doesn’t like it, it’s a “subsidy”. If one likes it, it’s an “investment”.
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.
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.
"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?
I think we need to take the Domestic Manufacturers Deduction and expand it to a greater deduction if that energy is refined, and a further deduction if sold in the U.S.
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.
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.
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.
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..
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%!!!
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%!!!
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?
Apparently you and I are not nuanced enough to understand the bigger points that were being made by the use of hyperbole.
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.
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?
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?
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