US Tax Subsidies to the Oil Industry: Like Paying Fish to Swim

Do you remember George W’s promise to end oil addiction? Part of that process would be beginning to end the vast subsidies given to the oil industry at tax-payers expense.

But last month, as yesterday’s great article in the New York Times, pointed out “the Bush administration confirmed that it expected the government to waive about $7 billion in royalties over the next five years, even though the industry incentive was expressly conceived of for times when energy prices were low. And that number could quadruple to more than $28 billion if a lawsuit filed last week challenging one of the program’s remaining restrictions proves successful”.

In investigation by the paper has highlighted that despite record profits, US tax-payers continue to give the oil industry billions.

Massachusetts Congressman Edward J. Markey told the NYT: “Taxpayers are being asked to provide huge subsidies to oil companies to produce oil: it’s like subsidizing a fish to swim”.

The first scam is this: Tax incentives passed by Congress in 1995 to help the oil industry is times of trouble (low oil price) are still in place even though the oil price has rocketed. There was meant to be a cut-out clause when the oil price went too high, but somehow this never got enacted.

“To hear lawmakers today, they never intended to waive royalties when energy prices were high” wrote the Times. “The 1995 law, according to Republicans and Democrats alike, was supposed to include an escape clause: in any year when average spot prices for oil or gas climbed above certain threshold levels, companies would pay full royalties instead”.

But the crucial escape clause was omitted by the Clinton Administration in all offshore leases signed in 1998 and 1999. Even though oil prices have been above the cutoff points since 2002 about one-sixth of production in the Gulf of Mexico is still exempt from royalties.

Things could get even worse. Kerr-McGee Exploration and Production filed a lawsuit earlier this month, arguing that Congress never authorized the government to set price cut-offs for incentives on leases awarded from 1996 through 2000. If the company wins, the Interior Department recently estimated, about three-quarters of oil and gas produced in the Gulf of Mexico will be royalty-free for the next five years. The oil companies stand to make billions.

But yesterday’s Times pointed out that apart from this screw-up dating back to the Clinton years, the Bush Administration is also “offering new incentives for the energy industry”, including “generous” ones set up by Gale A. Norton to “sweeten less-generous contracts the drillers had signed before the regulation was approved”.  Moreover, in  August last year Bush gave the industry further tax incentives, including $2.6 billion in new tax breaks for oil and gas drillers and a modest expansion of the 10-year-old “royalty relief” program.

So the old saying goes there are only three things in life that are certain: you are born, you pay your taxes and you die. Now we know that another thing is certain: that the oil industry is essentially stealing your hard-earnt taxes.