Skip to comments.Myths About Oil and Gas
Posted on 05/13/2011 8:50:52 AM PDT by Kaslin
As voters around the country wince at rising gas prices, panicked Democrats, in a rush to cover the failure of their all-or-nothing bet on the alternative energy industry have started singing a familiar tune blame the oil and gas industry. Instead of facing the reality of his owned failed policies, President Obama is calling for an end to the "tax giveaways" he claims amount to $4 billion in subsidies to the energy industry.
This tactic isnt surprising given the effect that rising gas prices have on the Presidents approval ratings and his obsession with re-election. But, less than truthful innuendos and political spin hardly helps American working families that are getting hammered at the pump.
If our leaders are going to have an honest discussion about energy, it's important to clear up a few rumors, misconceptions and outright falsehoods being perpetrated about the oil and gas industry. Let's begin with three of the more common ones:
1. The industry doesnt receive any taxpayer funded subsides. None.
2. Rampant speculation and Wall Street tricks arent driving up gas prices.
3. The oil and gas industry is not dodging the taxes they owe and withholding their fair share.
I'll say it again; contrary to popular opinion and the President's spin, oil and gas gets no taxpayer funded subsidies. The tax code does allow them certain tax credits and deductions to encourage continued investment in an industry that is heavily front-end loaded with capital expense. These are the same kind of incentives available to Coca-Cola, General Electric, Ford, and Micro-Soft and other companies doing business in the U.S. Or, for that matter, like the deduction for mortgage interest payments enjoyed by homeowners. But, importantly these are tax credits, and markedly different from direct taxpayer cash subsidies like the 45 cent per gallon payment blenders get to put ethanol in fuel mixes.
When businesses invest in America, we all benefit. The oil and gas industry plows about $300 billion into domestic projects per year that's 75 times more than Obama's phantom "taxpayer giveaways" amount - and employees over 9 million people. Those are real numbers; not Washington spin, and if government would allow and encourage even more domestic production there would be more jobs and more investment and more total taxes paid, too.
Another argument that often circulates when gas prices go up is that a phantom class of Wall Street speculators is to blame for the increase of prices. So pervasive was this school of thought that in 2008, President Bush commissioned an exhaustive review, via the Commodity Futures Trading Commission, of the effect that speculators had on market prices. Their conclusion was surprising, according to The Wall Street Journal, The agency concluded that speculatorsotherwise known as traderswere putting downward pressure on prices. The liquidity they provide helps to smooth volatility.
Not satisfied with the 2008 study, President Obama recently resurrected this school of thought, even tapping Attorney General Eric Holder to police perceived illegal activity and price gouging. Yet within the Presidents own Administration, the Federal Trade Commission found that the recent spike in oil prices is due primarily to normal market forces, including booming demand from developing economies in India and China and not because of any questionable behavior from Wall Street.
The third popular attack is that somehow oil and gas industry isnt paying its fair share in taxes. Democrat mythology aside, the oil and gas industry pays a much heftier percentage of net income in taxes (41.1%) than the average of all other S&P Industrials (26.5%). Every single day, the industry is sending more than $85 million to the U.S. Treasury for taxes and royalty payments. Yes, the energy companies are profitable, but their profit margins are right in line with manufacturing, aerospace, and food industries, while computer, pharmaceutical, and the beverage companies have triple the net income margins of traditional energy.
I don't like subsidies and I don't like Congress or the IRS deciding what is good economic behavior and what is bad. But, I do understand that you get more of what gets incentivized, and less of what is penalized. And, there is a huge difference in "redistributing the wealth" through direct subsidy payments, and a tax credit that encourages investment in much needed production that creates jobs and taxable income.
If congress is serious about creating jobs and jump starting the economy, they should lower the corporate tax rate, which is the highest among the 34 OECD nations, rather than increase the tax burden on energy or any industry.
Capital is fungible, and energy production is the prototypical global industry. Plenty of nations around the world are providing a far more welcoming business environment for energy production that the U.S. already with a less onerous tax code and far less regulatory burden.
If increasing our domestic supply is really a national objective, then this might not be the best time to send exactly the opposite message to the people that provide the capital to drill the wells.
We need more jobs, more domestic production, not more taxes.
The demagoguery has never been so stark as the democrats on this issue. Their lying through their teeth for political advantage.
I have seen editorials applauding House Speaker Boehner for embracing the perpetual populist canard for eliminating oil-industry tax benefits, so they can begin to pay their fair share in taxes. The statement is false because corporations do not pay, but instead collect taxes from customers for government benefit. Corporations, partnerships, and individual proprietorships of any size prepare a budget where taxes are a cost of doing business. The final budget document given to managers to work from ends with after tax profit. This is a critically important number, at least because dividends are paid from after tax profits.
If in fact taxes cannot be passed to the customer, companies either leave the business or suffer an anemic presence compared to competitors. The first area to suffer is the capital budget and next is compensation, which means they are at a disadvantage in competing for people. A company like ExxonMobil has the sophistication and size to compare benefits available from a multitude of countries, and choose those maximizing the profitability for the next dollar invested. They would never continue investing money in a country where they paid taxes, and did not receive comparable sets of government benefits.
Editorials stating such things as ExxonMobil this week reported first quarter profits of $10.7 billion up nearly 70 percent from last year should at least bemuse or amuse people. The profit is worldwide for the worlds largest company, with only one quarter of it coming in the U.S. Also, the profit margin was just over 9%, which of course does not help this typical editorial. It would also be useful to juxtapose General Electric, which in 2010 earned $14.2 billion, received $3.2 billion in benefits, and paid no U.S. taxes.
Excuse me. I should say we paid no taxes for our G.E. purchases, but did pay our fair share of their $3.2 billion in subsidies.
ExxonMobil profits up 69 per cent on high oil prices
General Electric Paid No 2010 Income Taxes
The energy development model as now constituted is not working for the US economy or the citizens. Tweaking is not an answer any more. There has to be a game changer.
If the government was serious about lowering the cost of energy, it would open up the development of oil resources in the US, remove/reduce restrictions on development, and if necessary, provide subsidies for refinery, pipeline, and well development wholly owned by US shareholders.
The quid pro quo would be that all of that energy would stay in the US.
Any oil shipped out of the US would have a $30-$40 a barrel tariff placed on it to pay back the subsidies.
Since these companies would be owned by Americans, assisted by subsides from the government, in essence our money, and the energy used here, this would provide jobs for Americans and provide energy the lowest cost.
Let the rest of the world play the global energy game and the US should set up the largest CO-OP in history.
Please, no more subsidies. Not even ones that would directly benefit me personally.
Just open up more areas to exploration. Be reasonable and consistent on regulations and permits. Be competitive globally on taxes and rarely tweak them.
Same old, same old.
You are looping.
Biggest myth = oil is a fossil fuel
Great article. I am tired of the lies about the oil companies. You hear about their profits but what the government takes on every drop of oil produced is by far greater. Plus the government does absolutely nothing to produce oil or energy but instead puts restrictions on production thus driving the cost up more.
Hussein could lower the price of energy tomorrow. By presidential order he could:
1) End the blending of "boutique" gasoline.
2) Approve ALL outstanding drilling permits immediately.
3) Open up all areas in Alaska and off both coasts for drilling.
4) Fast track the Keystone pipeline project.
These moves alone would decrease the price of a barrel of oil dramatically. They would have the added benefit of spurring job growth. They would not cost the government a penny and would generate billions in taxes.
For the longer term he could announce a real comprehensive energy program along these lines:
1) End all subsidies for "green" energy programs including and especially ethanol.
2) Announce a billion dollar program to build six coal to oil plants.
3) Grant all pending permits for coal mining and open up federal lands to coal.
4) Announce a billion dollar program to build six nuclear plants using new technology centered around "pebble bed" or thorium reactors. These reactors would be located on the coasts and could be twinned with desalination plants that turn saltwater into freshwater. Run the water plants at night when energy use is less.
5) Announce a billion dollar program to help develop shale oil and algae/bacteria to oil schemes.
6) Close the Department of Energy and the EPA.
The money you save closing those two departments and the extra tax money generated would fund those three billion dollar programs.
Oil prices would drop like a stone.
Now, if I can come up with this stuff, off the top of my head, why doesn't Hussein do any of this? Either he doesn't think it would work, in which case he is either stupid or ideologically blinded. Or, he is not interested in lower energy prices. I think it is a combination of both.
More domestic productions, which include drilling
I’ll sign on to all that. Just develop all we have in the US. Process it here, and use it here.
Tariff the hell out of any oil that leaves the country.
You wouldn't want to or have to tax energy exports. You would be producing more than you need. You would have to seek out foreign markets for the energy you produce, just like Canada and Mexico and OPEC do. You would be able to reduce your trade deficit. You would be able to export new technologies. Your service industries would be in demand to build new plants and infrastructure overseas.
You don't want to tax exports. You want to encourage them. You export products and commodities where you have a comparative advantage. Believe it or not the US has a vast comparative advantage in coal. You could develop a comparative advantage in oil and, perhaps more importantly, in the infrastructure needed to produce and move energy to market. You just need the political will to do so.
Big oil gets about 3 cents per gallon in profit while big government gets about 50 cents per gallon in taxes. Who do you think is the bigger cause of high gas prices?
Because he hates America as it is and wants to destroy our way of life. He wants to humble us.
More jobs, more domestic production, less taxes.
I would say that is worth repeating until a few more politicians understand it.
It doesn’t need to be limited to the oil industry.
GE claims they paid $2.7 billion in taxes in ‘10 and paid $23 billion in the last 10 years.
ExxonMobil IS NOT the worlds largest company, its not even the largest oil company. It IS NOT the largest employer of people in the US. Exxon has the largest GROSS profit, BUT NOT near the highest profit margin. In fact their profit margin is about average at best.