Special tax breaks for Big Oil companies are a target for elimination by the Obama Administration and some Congressional leaders because they provide unnecessary support for hugely profitable companies, while education and other programs vital for a strong middle class are cut. Contrary to oil industry claims, the elimination of these tax breaks has nothing to do with politics. Let’s examine and debunk misguided industry claims that these tax breaks are essential for the big five oil companies—BP plc., Chevron Corp., ConocoPhillips, ExxonMobil Corp., and Royal Dutch Shell Group—which made $200 billion in profits over the past six quarters.

The oil and gas industry has been the most heavily subsidized energy source over the past 100 years according to “What Would Jefferson Do?” a study by the venture capitalist firm DBL Investors. It determined that the oil industry received a total of $446 billion in government subsidies from 1918-2009. Meanwhile, the renewables industry received $5.5 billion over past 15 years. Taxpayers invested $80 in oil for every $1 invested in clean, renewable energy.

Big Oil companies are eligible for special tax breaks designed specifically for them. For instance, a tax provision dating back to 1916 permits independent oil companies to “expense” certain costs associated with drilling oil wells. This means they can take immediate deductions for these costs rather than spreading them over the useful life of the wells, which is the normal tax code rule for other types of investments. Taking deductions immediately means the companies lower their tax bill in the first year, in effect getting an interest-free loan from the government.

Another example of a special break for Big Oil is their inclusion in a 2004 law that gave the beleaguered manufacturing sector a special tax break designed to discourage outsourcing of jobs. But for a number of reasons—including the capital-intensive nature of oil production, the relative mobility of investments, and the level of profitability—there are vast differences between the oil industry and traditional U.S. manufacturing. As Sen. Bob Corker (R-TN) explained, “Congress was trying to solve a manufacturing issue in this country” by enacting the deduction and included oil producers “almost inadvertently.”

These and other special breaks will cost the Treasury $24 billion over the coming decade, according to the Congressional Joint Committee on Taxation. And economists have recognized that there is no meaningful difference between tax expenditures and programs that spend money directly. President Ronald Reagan’s chief economic advisor, economist Martin Feldstein, noted that:

These tax rules—because they result in the loss of revenue that would otherwise be collected by the government—are equivalent to direct government expenditures. If Congress is serious about cutting government spending, it has to go after many of them.

Moreover, contrary to claims by Big Oil lobbyists, the big three publicly owned U.S. oil companies—ExxonMobil, Chevron, and ConocoPhillips—paid relatively low federal effective tax rates in 2011. Reuters reports that their tax payments were “a far cry from the 35 percent top corporate tax rate.” Their effective federal tax rates in 2011 were: ExxonMobil, 13 percent; Chevron, 19 percent; and ConocoPhillips, 18 percent. Yet they were also the first-, second-, and 13th-most profitable public U.S. companies in 2011, respectively, according to Fortune.

Perhaps the most implausible claim is that removing these tax breaks “would result in less capital available” for domestic oil production. The big five oil companies used one-third of their 2012 profits to buy back their own stock, thereby enriching their biggest shareholders. In addition, these companies have $60 billion in cash reserves available to invest in oil production. Yet despite all this cash, these same companies actually produced 6 percent less oil in 2012 compared to 2006. Eliminating these tax breaks for these Big Oil companies would have little impact on their production.

Yet while the $2.4 billion in annual revenue from these tax breaks is paltry to the big five oil companies, investing the same $2.4 billion in education or clean energy would make a huge difference to middle-class families. For instance, these funds could pay for 500,000 Pell Grants for college students, 36,000 teachers’ salaries for public schools, or solar panels to provide clean electricity to 67,000 homes.

The House-passed budget authored by Rep. Paul Ryan (R-WI), however, would leave these oil tax breaks in place. What’s more disturbing is that his budget would cut the corporate tax rate by 30 percent, which would provide the big five oil companies with an additional $2.3 billion annual tax cut. Rep. Ryan claims that this cut would be offset by ending special tax breaks but he has not publicly identified a single one.

The existing special tax breaks for big oil companies force Americans to pay twice: first at the pump for high gasoline prices, and again by robbing the Treasury of $2.4 billion annually that is replaced with tax revenue from the middle class. It’s long past time to eliminate these unnecessary special tax breaks for the largest oil companies.

An earlier post in this conversation noted that in 2016, special breaks for oil and gas will be 100 years old. Coincidentally, in 2016 the Investment Tax Credit for renewables will also expire. My suggestion is that we make 2016 a banner year, and remove the subsidies for oil and gas AND renewables.

It is far enough away too allow long-term planning, it will provide for that rare instance when both sides can give up something, and our budget deficit could surely use the relief.

Renewables have received essential support. By 2016 the price of natural gas will be climbing, and the business case for renewables will be compelling on its own. As someone who makes his living from renewables, I'm willing to bet my paycheck on it.

The current U.S. federal tax code is a labyrinth of loopholes that just about all analysts agree is inefficient. Most economists from across the political spectrum agree that it would make the U.S. richer to adopt a simpler and “flatter” tax code, which lowered or eliminated deductions and credits but at the same time reduced marginal tax rates across the board. A reformed tax code could raise the same revenue for the government while encouraging faster economic growth.

In this context, the present issue under discussion—“Should oil and natural-gas tax breaks stay or go?”—seems like a no-brainer. But as we’ll see, the very phrasing of the debate in this way is misleading. Several of the alleged “tax breaks” enjoyed by oil and natural gas companies aren’t “breaks” at all, but straightforward applications of taxation principles to their business models. Furthermore, the actual proposals that policymakers typically put forth make the tax code even more lopsided and inefficient. Rather than providing efficient tax reform, these proposals amount to a straight-up tax increase on the few areas in our economy that are actually generating jobs.

Oil and Gas “Tax Breaks” Aren’t Special Loopholes At All

Let’s consider three of the biggest proposed changes: The repeal of the domestic manufacturing deduction for oil and gas companies (which would bring in an estimated $11.6bn over 10 years), the repeal of percentage depletion allowances for oil and natural gas wells ($11.5bn), and the repeal of expensing of “intangible drilling costs” ($13.9bn), as detailed on pages 221-236 of the White House’s FY 2013 budget proposal.

Domestic Manufacturing Deduction: Back in 2004 Congress changed the tax code to encourage companies to keep their production activities within the United States. This was not a feature unique to oil and gas companies, but applied generally to businesses “that perform domestic manufacturing and certain other production activities,” as Wikipedia explains.

If policymakers want to completely scrap the Section 199 deduction and in turn reduce U.S. corporate income taxes, that might make sense. After all, U.S. rates are already the highest in the developed world. But what does not make sense is leaving the Section 199 domestic manufacturing deduction in place for every other qualifying industry, but to amend it so that oil and gas activities no longer qualify. The Obama Administration’s proposal here would actually make the tax code more convoluted, and have the direct effect of making oil and gas production in the U.S. more expensive.

Percentage Depletion Allowance and Intangible Drilling Costs: Businesses are allowed to deduct the depreciation on their capital equipment as an expense that offsets their gross revenues and lowers their taxable income. This isn’t a “loophole” but is simple accounting. For oil and gas companies, one of their major forms of depreciation is the fact that their wells become less valuable as the product is extracted from them.

This is why the tax code historically has allowed oil and gas companies to deduct a certain percentage of the value of their sales in the form of a depletion allowance. This particular provision was originally put in place in 1926, and in 1975 was removed for the integrated oil companies (“Big Oil,”in politician-speak.) A similar analysis holds for so-called intangible drilling costs, which much like deductions for research and development, allows the deduction of other expenses related to the exploration and discovery of new wells. In both cases, these are actual business expenses, and the tax code currently favors the independents over the integrated majors. Eliminating these provisions would in no way be closing “special loopholes” for “Big Oil.”

Conclusion

If policymakers want to have broad-based tax reform that removes distortions from the energy sector, they should resist calls to renew the inefficient Production Tax Credit (PTC) and they should pay more attention to the tax subsidies currently going to renewable energy sources, which dwarf those received by oil and natural gas on a BTU basis.

Most important, if policymakers simply remove current deductions and exemptions from oil and gas companies with no offsetting rate reductions, this will be a straight-up tax increase. This move will raise energy prices while reducing domestic energy production in two areas that are actually creating jobs during this dismal recovery.

The discussion about whether or not to keep or eliminate fossil fuel subsidies always goes down the path of a strong YES, or a strong NO. This is somewhat unfortunate, because it polarizes the debate and complicates the path to resolution.

The YES crowd (usually fossil fuel companies and their representatives) claims that these subsidies are not unique to their industry, and either way, create jobs and economic development opportunities. The NO crowd usually points out that the fossil fuel industry is highly profitable and does not need them anymore.

So let's just be honest about a few things.

First, the percentage depletion allowance, the expensing of marginal drilling costs, and Master Limited Partnerships are unique tax breaks/subsidies offered to the oil and gas industry. Anyone who tells you differently is, quite simply, not telling the truth.

Second, the argument that these benefits are not subsidies is silly. There is little difference between the government giving you money (via a "subsidy") and the government not making you give them money (via a "tax break" which is a subsidy) when it comes to the end result. Both provide advantages in the marketplace, if inequitably applied. This is a smokescreen.

Third, both sides have good arguments (in places). The NO crowd is right that the oil and gas industry will continue to prosper and prosper right here in the United States without these subsidies.They are, indeed, largely wasteful from a taxpayer perspective.The YES crowd is right that tax breaks de-risk and promote investment at some level, which in turn has economic/energy benefits. It's the same argument the NO crowd makes when they say YES to incentives for renewables. The best way to resolve this piece of the argument is to avoid it, and move on to the more important issue: parity.

The issue with the oil and gas subsidies discussed above is not that they exist for oil and gas, but that they exist for oil and gas and no one else. Even worse, subsidies for renewables expire (creating further investment uncertainty) while those for fossil fuels do not. The result is more fossil fuel dependence, less innovation and alternative fuels, and the loss of economic opportunity to other countries that do not have the parity problem. That is not a good outcome for Americans, because the innovation economy is a huge source of jobs.

The first step to getting out of this box is to stop framing this debate the wrong way. There are a lot of policymakers out there who would get behind a parity message (or alternatively, would have difficulty opposing one), but are turned off by those making this all about oil company profits or ecological filth. So let's stop making our political challenge bigger and get back to the message that is more American than profit itself: same rules for everyone.

The development of America’s abundant oil and natural gas reserves has generated millions of dollars in state, local and federal revenues while creating tens of thousands of good jobs and bolstering America’s national and economic security.

But despite a common misperception, our nation’s oil and natural gas producers do not receive a red penny in taxpayer subsidies. Businesses, across sectors of the economy, are taxed on their earnings after the costs of doing business are deducted. Most businesses—like the oil and natural gas industry—deduct various operating expenses. Subsidies however take the form of direct payments from the government.

In fact, our member companies receive many of the same federal tax provisions provided to a broad range of other industries, ranging from Starbucks to Apple and almost every domestic manufacturer.

In the most basic terms, these provisions – which are not handouts – aim to encourage the further reinvestment in American energy development and, of course, continued job creation and more revenues. As history has shown, America's economic health and energy security are uniquely connected. These common sense and historic tax provisions seek to ensure the continued safe development of our job-creating, revenue-generating American energy resources. The result? Revenues to the U.S. Treasury.

For the past 80 years, America’s independent oil and natural gas producers have been able to deduct various drilling-related costs. These “intangible drilling costs” typically represent 65 to 80 percent of the capital expenditure budget of independent producers, and eliminating this provision will decrease American energy production and cost jobs here at home. Ask the folks in California, where as of last week the average price of gasoline was $4.67 per gallon, if they believe the federal government should be unnecessarily restricting supply of American oil.

Additionally, all mineral resources are permitted to use percentage depletion as a way to reflect the decreasing value of their resource as it is produced. Originally added to the tax code in 1926, the oil and natural gas percentage depletion allowance only applies to America’s smaller independent producers—the average employs 12 people—and royalty owners.

Eliminating the tax deduction for drilling costs at current tax rates will cut independents’ capital budgets by 25 percent. This will hurt independent producers – small companies who develop 95 percent of America’s oil and natural gas – and constrain, rather than expand, access to domestic energy supplies, costing American jobs, and limit energy-related revenues.

Nearly two-thirds of America’s independent producers are small businesses. If Congress simply lowers the corporate income tax rate, these small businesses will receive no benefit since they pay taxes as individuals. And if Congress eliminates business deductions to pay for a reduction in the corporate tax rate, small businesses will no longer be able to use these deductions, resulting in a tax increase.

America’s independent oil and natural gas producers have historically reinvested as much as 150 percent of their cash flow back into American production to create jobs and energy supplies here at home. A workable, common sense tax structure is critical to continue this much-needed development of American energy.

In 2010 alone, independent producers were estimated to have paid over $69 billion in federal and state taxes, while employing more than 500,000 workers in the exploration and production. These workers earn wages more than 50 percent higher than the average of all American manufacturing jobs. With unemployment near 8 percent, we have arguably never needed this industry’s resilience as much as we do right now.

The Washington argument over the tax code’s treatment of U.S. oil and natural gas companies obscures the critical support our industry gives to the broader economy – and minimizes the significant, daily contribution our companies provide to the federal treasury. It’s impossible to have an informed discussion about corporate tax reform, as it might apply to the oil and natural gas industry, without first acknowledging:

•America’s oil and natural gas companies support more than 9 million jobs while contributing nearly 7.7 percent to our country’s GDP.

•We contribute $86 million a day to the U.S. Treasury, with an effective tax rate that’s nearly double the average for all industries.

•We accounted for almost 14 percent of all U.S. industries’ capital expenditures between 2008 and 2010, spending nearly $156 billion a year on infrastructure right here in America. In 2010 alone, our companies contributed $476 billion to the U.S., economy – more than half the size of the 2009 stimulus package.

•The oil and natural gas industry doesn’t receive a dime in subsidized credits or unique “tax breaks.”

•Tax provisions available to the oil and natural gas industry are normal business deductions available to all industries. There are no “subsidies.”

Let me emphasize that last point. Our industry isn’t subsidized by U.S. taxpayers. Since its inception, the tax code has permitted corporate taxpayers to reasonably deduct business expenses when calculating their taxable income. This is known as cost recovery, which benefits all types of businesses and industries. The ability to recover costs is key to fostering a strong and stable investment environment. For our industry, it means oil and gas companies making that next energy investment, which translates into more energy for the country, more jobs for Americans and more tax revenue for government.

That said, let’s be clear: In any discussion of corporate tax reform, our industry should be treated like other industries. Tax fairness means not singling out an industry – or a handful of companies within an industry – for higher taxes. Instead, the goal should be a tax structure that promotes domestic investment and international competitiveness. We harm ourselves if we implement measures, under the guise of reform that discourage investment and disadvantage U.S. companies against global competitors.

(These comments were submitted by Matt Dundas, Acting Campaign Director at Oceana.)

If nothing changes, major tax breaks for oil and gas companies will celebrate their 100^th birthday in 2016. For most of that history, these tax breaks have been a burden on the economy, so much so that high-level U.S. authorities have been calling for their dismantlement since as early as 1933. In the present era, as lawmakers from all sides call for economic stewardship and a renewed emphasis on balanced budgets, an industry that achieves record profits nearly every quarter should not receive $10 billion in annual gifts from the U.S. taxpayer. These subsidies are outdated and counterproductive, as they reward the richest among us for polluting everyone else’s air and water, and inducing climate change and ocean acidification.

If anything, they should be paying us $10 billion a year, not the other way around. It’s common sense: these subsidies must go.

Ironically, the unprecedented success enjoyed by this industry in the last 96 years, which was partly facilitated by these tax breaks when they were new, quickly resulted in just as unprecedented power in Washington, D.C. So much so that oil companies have been able to convince lawmakers not to undo these indefensible tax breaks for nearly 100 years. In the present day, a less worthy industry could hardly be found. In the past, it wasn’t much different.

In 1937, President Franklin D. Roosevelt’s intrepid Treasury Secretary, Henry Morgenthau, Jr., sent a letter to the president outlining examples of egregious tax laws that were holding back the American economy. In it, he declared that the subsidies to the oil industry were “perhaps the most glaring loophole in our present revenue law”, adding that he “recommended in 1933 that this provision be eliminated but nothing was done at that time; and it has since remained unchanged”. Sorry to break it to you Hank, but it’s now 75 years later and guess what? Still no change in the policy.

While the policy has not changed, the subsidies actually have: they’ve grown! In 2005, President George W. Bush thought his oil buddies weren’t getting enough of our money to pollute the climate and oceans, and extended the tax breaks to their current level of $10 billion a year.

Big oil companies were the victors in 1933, 1937, 2005, and every year in between and since, for the simple reason that they invest heavily in lobbying and campaign contributions, and as a result see the election of many of their most ardent supporters. Some things never change, but in the end, common sense should win out.

It’s common sense that the most financially successful industry in the history of the world doesn’t need additional help from the U.S. taxpayer. Add to that the incalculable cost of climate change and ocean acidification (a recent forecast by the Stockholm Environment Institute said the cost of the damage to the oceans alone will reach $2 trillion a year by 2100), and one can only conclude that we are senselessly subsidizing our own demise.

It has been said before and it merits repetition. It’s common sense: subsidies for oil and gas must go.

The security of our nation and prosperity of our people depends on a growing and robust economy, an affordable and reliable supply of energy, and a reduction of our massive debt. Failure to advance a strategy that delivers on these objectives means a future decline of our standard of living--if not worse.

As President of the American Council On Renewable Energy, I call on our nation’s leadership to develop a strategy to achieve these mutually reinforcing objectives, including tax code reform. Simplifying the tax code will drive economic growth, put people back to work, and protect the environment while enabling development of our abundant domestic energy resources, including wind, solar and alternative fuel resources.

Reforming the tax code can lead to a “real” “all of the above” energy strategy. We need to simplify and reduce the tax burden on business and at the same time review and reform all energy incentives.

Despite what you might hear, energy incentives are not new to the tax code—federal government support for energy dates back 200 years. As ACORE’s Energy Fact Check recently noted, when quantified over time government investments in oil, coal, gas and nuclear industries total approximately $630 billion, while government investments in wind, solar, biofuels and other renewable sectors total roughly $50 billion. The former technologies also enjoy permanent, codified support, while renewables must fight hand, tooth, and nail to maintain even temporary support every year or so.

The United States needs a smart, balanced energy policy that includes and supports renewable energy as well as traditional energy sources. Renewable energy should not be treated differently than other energy sources, and should receive the same long-term support from which other energy sources have benefited during their scale-up.

The tax code should not pick winners and losers—it should support a diverse energy portfolio that includes wind, solar, geothermal and other renewable energies. Such an energy strategy will drive America’s economic growth, reduce the deficit, and protect the environment.

It is difficult to imagine a more controversial and politically exploited issue than taxes, especially with respect to the oil and natural-gas industry. During the first presidential debate, Pres. Obama claimed that it would help the economy if the government were to end the energy industry’s "corporate welfare.” What analysts, experts and pundits alike fail to mention, is the fact that the energy industry does not receive special tax treatments at all.

At issue is what is less commonly, but somewhat officially, referred to as the “standard tax provision.” Despite what politicians may say, Section 199 of the U.S. Tax Code does not provide a subsidy. Rather, it provides a legitimate tax reduction available to nearly every American manufacturer. That's right, there is no such thing as an oil and gas subsidy.

Created by Congress as a crucial component of the American Jobs Creation Act, Section 199 encourages manufacturers to re-invest their capital in domestic operations in order to grow the economy and promote domestic job creation. For example, GM could use the “Domestic Production Activities Provision” to build and operate a new transmission plant here in the U.S. instead of say, Mexico or China. The provision applies evenly to software manufactures, traditional manufacturing activities and yes, even to the movie industry.

We would all do well to read Nick Schultz's recent “Taxation Hero” article in Forbes. Many would be surprised to learn that ExxonMobil already pays three dollars in taxes for every single dollar in profit. Most are also surprised to learn that the U.S. already has the 4^th highest corporate tax rate among industrialized nations.

Instead of pointing fingers at companies largely responsible for pulling the nation through the last recession, the debate should focus on whether our economy is best served by a higher corporate tax rate than is found in France, Germany or the United Kingdom.

Two years ago the Treasury Department was summoned to a Senate hearing to answer the question “which oil and gas incentives have outlived their usefulness?” The list was a long one, covering nine separate tax breaks costing about $4 billion every year, year after year. The percentage depletion allowance alone accounted for nearly $1 billion a year in lost tax revenue. This tax benefit was placed in the tax code to encourage oil and gas drilling back in 1916 – nearly a century ago! The experts in the Treasury Department concluded that the extraordinarily high prices charged for oil – prices kept high by a global market unaffected by the small fraction of world oil supplied by the United States –mean that these tax loopholes could be closed without undermining the industry’s robust incentive to explore for and produce their product.

One sign of how bizarre the oil and gas markets have become is the new interest the industry has in exporting our domestic oil and gas, even while we remain nearly 50 percent dependent on oil imports. Political rhetoric from both parties still pays tribute to the goal of energy independence, yet the markets are encouraging exports. A recent Reuters report notes that “While the United States still imports more than 8 million barrels of crude oil per day, a glut of light, sweet crude oil created by the controversial hydraulic fracturing or 'fracking' boom could fetch higher prices on international markets.” Natural gas producers have applied for LNG export licenses in order to ship gas overseas to garner high prices there. What will politicians say when the “energy independence” justification for tax loopholes morphs into an energy export play to maximize profits? Won’t that just tighten market here and keep prices high? That is already happening.

Yes, it’s time to move on to the paradigms of the 21^st century. We need to encourage new forms of energy that promise a cleaner tomorrow, and better uses for the lands that all Americans own. Wind, solar, and other clean energies are just coming into their own, and shouldn’t be hamstrung by subsidizing the energy sources of yesterday. The mere existence of these fossilized distortions of the market holds back new energy sources from competing in that marketplace.

There are plenty of better uses for the $4 billion a year wasted on the oil industry. $4 billion a year could be a down payment on creating a clean energy future. $4 billion would wipe out the maintenance backlog for our national parks and refuges. $4 billion could improve the drinking water for the 60 million Americans that depend on National Forests for their water supply. Even if it was all devoted to deficit reduction, the revenue from closing these oil and gas loopholes would help lift the thumb off the scales and provide a fairer measure of the competitiveness of renewable energy today.

When Congress returns after the election, the fiscal cliff will still be looming. With cuts to all parts of the government on the table, let’s stop pretending that taxpayers are getting any bang for their buck from these stale subsidies enacted by our great grandfathers. A century of subsidies is enough.

An important role of the government is to provide fair rules and a level playing field on which businesses can function and compete. The Rule of Law should be paramount. When the government proposes to tilt the playing field against specific industries, it is treading on very dangerous ground. Once begun, where is the stopping point? Instead of functioning as an impartial referee, the government will be the bookmaker who fixes the game. The unintended consequences will be profound.

Kicking the oil industry has always been political fair game in Washington. And this year is no exception. What is different is that the President has been pushing this punitive agenda, a false one at that, for several years.

The so-called tax breaks for the oil industry that the President has been harping on are not unique to the oil industry. Let me repeat, these tax code provisions are not unique to the oil industry. What he is doing is using the technique of repeating a claim until it is accepted as fact. This notion that the oil industry receives preferential treatment is, to quote Vice President Biden, malarkey.

The tax provisions most often cited are Section 199, which deals with domestic manufacturing, dual capacity provisions that protects foreign profits from being taxed twice, intangible drilling costs, and the depletion allowance.

Section 199 of the tax code applies to alldomestic manufacturing and is intended to be an incentive for investment that creates US jobs. Even as written it discriminates against the oil industry. Every other qualifying organization receives a 9 percent deduction from profits; the oil industry has been limited to 3 percent since 2008. It goes beyond ironic that politicians want to take this away from the oil industry. When the US work force was shrinking by over 4 percent, oil industry employment grew by 22 percent, according to the Bureau of Labor Statistics.

Dual capacity is a tax code provision designed to protect US companies from being subjected to double taxation; first by the country where income was earned and again by the US. Like section 199, it applies to all companies. Eliminating it for oil companies would harm their ability to compete with national oil companies and reduce investments and employment.

Intangible drilling costs provisions allow oil companies to expense costs, such as wages, fuel, repairs, etc., associated with energy drilling. They are designed to give oil and gas companies the same treatment on operating expenses that companies in other industries enjoy. While these tax provisions are unique to the oil industry, they do not represent special treatment. Rather they are intended to provide equal treatment. Even so, major oil companies are limited in how much they can deduct in the first year of drilling.

Finally, there is the depletion allowance which applies to all mining. It allows drillers to deduct 15 percent of a well’s revenue from taxable income each year to depreciate the value of a well. It is available only to independent drillers. It was taken away from major oil companies over 30 years ago. So, this is a case of the President wanting to eliminate something that doesn’t exist. Does the word demagoguery come to mind?

The Congressional Budget Office and the Energy Information Administration have done analyses of energy “subsidies” which have been on steroids over the last several years. The bulk of them, about 80 percent, go to renewables and efficiency. Fossil energy gets about 10 percent. Proposals to take away tax benefits from oil companies that are available to all companies are pure discrimination, which as a nation we reject – or at least should.

When the government has the ability to punish success while rewarding failure, it’s a clear sign government has gotten too big, too powerful, and too intrusive. Thomas Jefferson over 200 years ago observed “a government big enough to give you everything you need is a government big enough to take away everything that you have.”

Instead of seeking to hamstring the oil industry, the Administration and Congress should be focusing on major tax reform that makes our system simpler, fairer, and better for American businesses to compete in the global economy. US companies presently are at a competitive disadvantage because of a punitive tax code that has the highest tax rate in the developed world. They should solve a real problem instead of one created out of whole cloth!

Understandably, taking aim at “Big Oil” is politically expedient in an election year, as is mischaracterizing as “subsidies” the deduction of business expenses and tax treatments (e.g., the manufacturing deduction and foreign taxes) available to all other businesses. But the truth is that the industry pays an effective tax rate over 40%, and according to a long-term Tax Foundation analysis, 40% more in taxes than it makes in profits. The top three U.S. oil and natural gas companies paid $42.8 billion in federal income taxes alone in 2010, which well exceeds the $2.8 billion in annual tax incentives. Including in income tax from thousands of other oil and natural gas companies as well all excise taxes, state taxes, rents, royalties, fees and bonus would further obliterate that number.

American oil and natural gas companies are already paying more than their fair share in taxes, while earning a very modest profit margin of under 7%. It may sound good to simplify the tax code and get our 40% tax rate down to 25%, but how can we trust Congress to do that in an equitable way when individual Members can’t tell the difference between a subsidy and a business expense? It’s well established that businesses, from mom-and-pop convenience stores to GE, get to deduct their business expenses. Taking that ability away from oil and natural gas producers would result in less capital available for finding and producing domestic energy, and more energy imports to fill the gap between supply and demand.

Independent producers, who employ on average twelve employees while drilling the majority of America’s wells, reinvest over 90% of their cash flow back into finding and producing more oil and natural gas. These companies are able to deduct the cost of doing business just like every other industry, and are not directly subsidized. Simply put, with higher taxes, they have less capital to create jobs and economic growth. Since the oil and natural gas industry is one of the few to have actually exceeded pre-recession job growth, increasing taxes would kill jobs and economic growth.

Congress has historically spent substantially more to promote fossil fuels than wind, solar and other renewable energy technologies. With the impact of global warming already being felt across the country, it is time to reverse this equation.

A 2009 study by the Environmental Law Institute provides a snapshot of this disparity. It found that between 2002 and 2008, the government gave fossil fuels $72.5 billion and renewable energy $12.2 billion in subsidies. In other words, 71 percent of federal subsidies went to oil, natural gas and coal, while only 12 percent went to renewables.

The historical averages tell a similar story. A 2011 study by DBL Investors, a venture capital firm, found that the oil and gas industry enjoyed an average of $4.86 billion in subsidies per year in today’s dollars from 1918 to 2009. But the new kid on the block—renewables—averaged only $370 million a year in subsidies between 1994 and 2009.

The question should be not whether the government should support energy. It clearly has a role to play in ensuring that our national energy sources are reliable and affordable. It made sense to subsidize oil and gas development nearly 100 years ago. The question should be whether the government should continue to underwrite extremely profitable, mature industries—especially ones that emit pollution —at the expense of nurturing new, promising low-carbon alternatives. The obvious answer is no. Ten oil companies are among the top 100 corporations on the 2012 Fortune 500 list. Exxonmobil, Chevron and Conoco Phillips are number 1, 3 and 4, respectively. It is to their credit that they are so successful and benefit their stockholders so handsomely. But it is poor public policy to continue to subsidize them with scarce public resources.

Another question we should ask is: What are we receiving for our public investment? In response to targeted but limited investment (e.g. wind and solar production tax credits and stimulus spending) and policy tools (e.g. renewable electricity standards, now in place in 29 states), the nascent wind and solar industries have delivered. Over the last five years, the wind and solar sectors have doubled their electricity output, employment and private investment. Through the middle of a deep recession and slow recovery, U.S.-based wind turbine, blade, tower and gearbox manufacturing has jumped 25 to 60 percent since 2005.

And the potential for renewables is enormous. They currently generate about 5 percent of U.S. electricity, but by 2030 they could produce more than 40 percent, half coming from wind.

It’s hard to find another sector in our economy that has produced that level of growth and impact during such tough economic times, and yet the Congress has rewarded that performance by dithering over renewing the wind production tax credit (already leading to layoffs by wind power equipment manufacturers in such states as Colorado and Iowa) while steadfastly supporting billions of dollars in outdated subsidies for the oil and gas sector.

President George W. Bush said in 2005, “I will tell you with $55 oil we don't need incentives to the oil and gas companies to explore. There are plenty of incentives.” With oil hovering around $100 a barrel today, under this logic, there is absolutely no reason to continue subsidies to oil companies.

We subsidize oil injection, extraction, exploration, drilling, injection, manufacturing, pricing, and inventory valuing, by creating price floors, offsetting foreign taxes, providing generous credits and deductions, offering tax shelters, and allowing the valuation of inventories at deeply discounted prices.

The Congressional Research Service and the Joint Economic Committee have confirmed that cutting these subsidies will not raise gas prices. Because oil prices are set on the global market and U.S. production is relatively low, subsidies provided by U.S. taxpayers serve mainly to increase oil company profits rather than reduce retail prices. For instance, according to filings provided to the Securities and Exchange Commission, the average cost to produce a barrel of oil in 2010 for the 5 largest oil companies was $11 while the average sale price for a barrel of oil was $72. Today, prices are considerably higher, while the cost of production has not appreciatively changed.

While American families struggle with high gas prices, the biggest oil companies rake in massive profits. BP, Chevron, ConocoPhillips, ExxonMobil and Shell made a combined profit of nearly $1 trillion over the past decade. Yet oil companies still enjoy billions of dollars of tax subsidies. During a time of significant fiscal challenges, this represents a dramatic waste of taxpayer dollars. My legislation, the “End Big Oil Tax Subsidies Act,” would end ten of the most egregious tax loopholes enjoyed by the oil industry, saving taxpayers roughly $40 billion over the next decade.

By eliminating these subsidies, we not only save taxpayer money, but remove a barrier to expanding the clean energy economy, which is undercut by the price supports we provide to the oil and gas industry. No subsidies should be forever – they should be temporary and reserved for industries that are investing in technology and improving competiveness. Right now that means ending giveaways to big oil and supporting wind, solar and other sustainable, renewable energy.

The fossil industry receives nearly $25 billion of yearly incentives. Oil reporter Todd Neeley compiled a list: 1.Exception from passive loss limitations for oil and gas -- $27.1 million annual, http://dld.bz/…; 2. Domestic manufacturing tax deduction -- $1.73 billion annual, http://www.americanprogress.org/…; 3. Exempt from passive investments -- $1.8 million annual, http://www.americanprogress.org/…; 4. Percentage depletion allowance -- $1 million annual, http://www.americanprogress.org/…; 5. Deduction for tertiary injectants -- $6.7 million annual, http://www.americanprogress.org/…; 6. Accelerated depreciation on equipment -- $4 billion annual, http://dld.bz/…; 7. Worldwide U.S. government subsidies through favorable lending -- $1.3 billion annual, http://dld.bz/…; 8. Credit for production of nonconventional fuels -- $2 billion annual, http://dld.bz/…; 9. Oil and gas exploration and development expensing -- $1 billion annual, http://dld.bz/…; 10. Foreign tax credit -- $2.2 billion annual, http://dld.bz/…; 11. Oil and gas excess percentage over cost depletion -- $771.4 million annual, http://dld.bz/…; 12. Credit for enhanced oil recovery costs -- $224.3 million annual, http://dld.bz/…; 13. Exclusion of alternative fuels from fuel excise tax -- $49 million annual, http://dld.bz/…; 14. Expensing liquid fuel refineries -- $23.4 million annual, http://dld.bz/… ; 15. Sulfur regulatory compliance incentives for small diesel refiners -- $15.6 million annual, http://dld.bz/…; 16. Northeast home heating oil reserve -- $7.1 million annual, http://dld.bz/…; 17. Commuter benefits exclusion from income -- $3.9 billion annual, http://dld.bz/18. Public liability in BP Gulf spill -- at least economic damages capped at $75 million -- $2.425 billion annual, http://dld.bz/…; 19.Strategic petroleum reserve -- $882.9 million annual, http://dld.bz/… . The idea that energy is a level playing field for which renewable energy and energy efficiency could compete in a transparent market is fantasy. Having many decades of subsidies give traditional energy sources market dominance which, in effect, keeps out options. If the USA wants an "all of the above" energy market, national energy policy needs to reflect that. Traditional energy subsidies have to be dropped so that the energy market can be truly competitive. Once the traditional energy sources and applications tax subsidies are dropped, incentives for the younger energy efficiency and renewable energy technologies and applications need to be ramped down over a 15 year period to zero, so that the domestic market becomes truly level and competitive. What has happened since the Reagan Administration, is that the renewable incentives get dropped on this pretext and the fossil and nuclear subsidies somehow remain. It is time that the policy makers from both political parties step up and stop being apologists for the traditional industries.

It’s clear that oil prices just under $100/barrel―and not US tax policy―drive investment decisions for the oil and gas industry.

With profits of over $1 trillion over the last decade, the largest oil and gas companies do not need government incentives to earn an income. Public Citizen research shows that the oil industry has spent more on stock repurchases and stock buybacks since 2004 than on domestic petroleum capital investment. This indicates that oil companies are awash in so much cash flow that they prioritize short-term investment gimmicks for shareholders rather than make the long-term investments our economy needs to be competitive in an era of permanently higher oil prices.

The roughly $10 billion a year in direct subsidies the industry receives is egregious considering the magnitude of critical programs slated for the chopping block. A short list of key tax breaks that the industry no longer requires in an era of $100/barrel oil:

• The last-minute addition of oil and gas drilling to qualify for the manufacturing deduction passed in 2004. Cost to taxpayers: $7.7 billion from 2012-16.

• More than 1,000 leases extracting valuable oil and gas from the Gulf of Mexico, royalty-free. Cost: $60 billion over the lifetime of the leases.

• Expensing of intangible drilling costs. Cost to taxpayers: $8.9 billion from 2012-16.

• Percentage depletion for wells. Cost to taxpayers: $5 billion from 2012-16.

• Last in, First Out accounting for the oil industry. Cost to taxpayers: at least $5 billion from 2012-16.

Repealing the roughly $10 billion in annual subsidies could be directed into a new federal program to finance the installation of 800,000 solar panels onto homes and small businesses.

The lack of leadership on the part of the oil industry is disappointing. Case in point: the industry’s lawsuit to prevent the Securities and Exchange Commission from implementing the Dodd-Frank rule requiring oil companies to disclose payments in excess of $100,000 made to foreign governments for the development of fossil fuel resources. The rule is designed to discourage publically-traded companies from bribing despotic governments. Jack Gerard, President of the American Petroleum Institute, complains the rule makes publically-traded companies “less competitive against state-owned firms in China and Russia that have no interest in transparency.” Translation: Because others may cheat, we should be allowed to cheat as well. API apparently believes that we need to model our corporate behavior based on the actions of oppressive dictatorships and other international miscreants. Given the near-daily scandals on Wall Street and elsewhere, it seems API (unfortunately) isn’t alone.

Shame on API. There was a time when American corporate leaders aimed to set the ethical bar high, as a model to the rest of the world. API’s desired race to the moral bottom is as bankrupt as their opposition to unneeded tax breaks.