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mlyonsd
05-12-2011, 03:01 PM
3 Myths About the Oil and Gas Industry

By Bob Beauprez
Published May 12, 2011 | FoxNews.com

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 (http://www.foxnews.com/topics/politics/obama-administration/barack-obama.htm#r_src=ramp) is calling for an end to the "tax giveaways (http://www.politico.com/news/stories/0411/53977.html)" he claims amount to $4 billion (http://www.nytimes.com/2011/02/01/science/earth/01subsidy.html?_r=2) in “subsidies” to the energy industry.

This tactic isn’t surprising given the effect that rising gas prices have on the president’s approval ratings and his obsession with re-election. But, less-than-truthful innuendos and political spin hardly helps America's working families who 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 doesn’t receive any taxpayer funded subsides. None.
2. Rampant speculation and Wall Street tricks aren’t 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, the oil and gas industries do not receive any taxpayer funded subsidies. The tax code does allow them to claim 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 Microsoft (http://www.foxnews.com/topics/microsoft.htm#r_src=ramp) 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. In 2008 this school of thought was so persuasive that President Bush commissioned an exhaustive review, via the Commodity Futures Trading Commission, looking into the effect that speculators had on market prices. Their conclusion was surprising, according to The Wall Street Journal, “The agency concluded that speculators—otherwise known as traders—were 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 (http://www.foxnews.com/topics/politics/obama-administration/eric-holder.htm#r_src=ramp) 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 isn’t paying its fair share in taxes. Democratic Party (http://www.foxnews.com/topics/politics/democratic-party.htm#r_src=ramp) 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 the 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 than 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.

Bob Beauprez is a former member of Congress from Colorado with successful careers as a dairy farmer, community banker, and real estate development. He has published his first book, publishes a public policy website, A Line of Sight.com (http://alineofsight.com/), and operates a buffalo breeding ranch in the Colorado mountains.

3 Myths About the Oil and Gas Industry (http://www.chiefsplanet.com/BB/3 Myths About the Oil and Gas Industry)

mlyonsd
05-12-2011, 03:03 PM
I thought this was interesting because of the distinction he makes between taxpayer funded subsidies and tax credits.

FD
05-12-2011, 04:05 PM
Giving an industry a special tax break is just a way to hide the subsidy, because some people see "tax cut' and think its good, where they would see "subsidy" and think its bad. There is no economic distinction.

Mr. Kotter
05-12-2011, 04:08 PM
Giving an industry a special tax break is just a way to hide the subsidy, because some people see "tax cut' and think its good, where they would see "subsidy" and think its bad. There is no economic distinction.

This.

FishingRod
05-12-2011, 04:13 PM
I don’t remember the exact name and particulars but there is one Tax break/incentive/subsidy that is unique to the oil industry and it has to do with the softening of the financial blow when they come up with a dry hole when drilling. It was meant to encourage domestic drilling. Other than that one which is grey in my feeble mind, I don’t think they have any “break” unique to their industry.

FD
05-12-2011, 04:20 PM
Oil and gas production is actually one of the most subsidized industries in the country.


Oil Companies Reap Billions From Subsidies

By DAVID KOCIENIEWSKI
When the Deepwater Horizon drilling platform set off the worst oil spill at sea in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to significantly reduce its American taxes.

The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, maneuvers that also helped it avoid taxes.

At the same time, BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.

With federal officials now considering a new tax on petroleum production to pay for the cleanup, the industry is fighting the measure, warning that it will lead to job losses and higher gasoline prices, as well as an increased dependence on foreign oil.

But an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.

“The flow of revenues to oil companies is like the gusher at the bottom of the Gulf of Mexico: heavy and constant,” said Senator Robert Menendez, Democrat of New Jersey, who has worked alongside the Obama administration on a bill that would cut $20 billion in oil industry tax breaks over the next decade. “There is no reason for these corporations to shortchange the American taxpayer.”

Oil industry officials say that the tax breaks, which average about $4 billion a year according to various government reports, are a bargain for taxpayers. By helping producers weather market fluctuations and invest in technology, tax incentives are supporting an industry that the officials say provides 9.2 million jobs.

The American Petroleum Institute, an industry advocacy group, argues that even with subsidies, oil producers paid or incurred $280 billion in American income taxes from 2006 to 2008, and pay a higher percentage of their earnings in taxes than most other American corporations.

As oil continues to spread across the Gulf of Mexico, however, the industry is being forced to defend tax breaks that some say are being abused or are outdated.

The Senate Finance Committee on Wednesday announced that it was investigating whether Transocean had exploited tax laws by moving overseas to avoid paying taxes in the United States. Efforts to curtail the tax breaks are likely to face fierce opposition in Congress; the oil and natural gas industry has spent $340 million on lobbyists since 2008, according to the nonpartisan Center for Responsive Politics, which monitors political spending.

Jack N. Gerard, president of the American Petroleum Institute, warns that any cut in subsidies will cost jobs.

“These companies evaluate costs, risks and opportunities across the globe,” he said. “So if the U.S. makes changes in the tax code that discourage drilling in gulf waters, they will go elsewhere and take their jobs with them.”

But some government watchdog groups say that only the industry’s political muscle is preserving the tax breaks. An economist for the Treasury Department said in 2009 that a study had found that oil prices and potential profits were so high that eliminating the subsidies would decrease American output by less than half of one percent.

“We’re giving tax breaks to highly profitable companies to do what they would be doing anyway,” said Sima J. Gandhi, a policy analyst at the Center for American Progress, a liberal research organization. “That’s not an incentive; that’s a giveaway.”

Some of the tax breaks date back nearly a century, when they were intended to encourage exploration in an era of rudimentary technology, when costly investments frequently produced only dry holes. Because of one lingering provision from the Tariff Act of 1913, many small and midsize oil companies based in the United States can claim deductions for the lost value of tapped oil fields far beyond the amount the companies actually paid for the oil rights.

Other tax breaks were born of international politics. In an attempt to deter Soviet influence in the Middle East in the 1950s, the State Department backed a Saudi Arabian accounting maneuver that reclassified the royalties charged by foreign governments to American oil drillers. Saudi Arabia and others began to treat some of the royalties as taxes, which entitled the companies to subtract those payments from their American tax bills. Despite repeated attempts to forbid this accounting practice, companies continue to deduct the payments. The Treasury Department estimates that it will cost $8.2 billion over the next decade.

Over the last 10 years, oil companies have also been aggressive in using foreign tax havens. Many rigs, like Deepwater Horizon, are registered in Panama or in the Marshall Islands, where they are subject to lower taxes and less stringent safety and staff regulations. American producers have also aggressively exploited the tax code by opening small offices in low-tax countries. A recent study by Martin A. Sullivan, an economist for the trade publication Tax Analysts, found that the five oil drilling companies that had undergone these “corporate inversions” had saved themselves a total of $4 billion in taxes since 1999.

Transocean — which has approximately 18,000 employees worldwide, including 1,300 in Houston and about a dozen in Zug, Switzerland — has saved $1.8 billion in taxes since moving overseas in 1999, the study found.

Transocean said it had paid more than $300 million in taxes so far for 2009, and that its move reflected its global scope, with only 15 of its 139 rigs located in the United States. “Transocean is truly a global company,” it said in a statement.

Despite the public anger at the gulf spill, it is far from certain that Congress will eliminate the tax breaks. As recently as 2005, when windfall profits for energy companies prompted even President George W. Bush — a former Texas oilman himself — to publicly call for an end to incentives, the energy bill he and Congress enacted still included $2.6 billion in oil subsidies. In 2007, after Democrats took control of Congress, a move to end the tax breaks failed.

Mr. Menendez said he believed the Gulf spill was devastating enough to spur Congress into action. But one notable omission in his bill shows the vast economic reach of the industry. While the legislation would cut many incentives over the next decade, it would not touch the tax breaks for oil refineries, many of which have operations and employees in his home state, New Jersey.

Mr. Menendez’s aides said the senator thought it was legitimate to allow refineries to continue claiming a manufacturing tax credit that he wants to eliminate for drillers because refining is a manufacturing business and because refineries do not benefit from high oil prices. Mr. Menendez did not consult with New Jersey refineries when writing the bill, his aides said.

http://www.nytimes.com/2010/07/04/business/04bptax.html?pagewanted=print

Mr. Kotter
05-12-2011, 04:52 PM
Oil and gas production is actually one of the most subsidized industries in the country.



http://www.nytimes.com/2010/07/04/business/04bptax.html?pagewanted=print

Oooopppp-sie Poo-oop-sie..... [\memyselfi]

FishingRod
05-12-2011, 04:57 PM
Oil Companies Reap Billions From Subsidies

So you are saying they are Big companies that make lots of money, take advantage of the laws as the are written and pay Billions in Taxes. Sounds about right.

FD
05-12-2011, 05:00 PM
Oil Companies Reap Billions From Subsidies

So you are saying they are Big companies that make lots of money, take advantage of the laws as the are written and pay Billions in Taxes. Sounds about right.

I'm not trying to say the oil industry is doing anything "wrong" (although they also aggressively use offshore tax havens.) But these massive subsidies do distort investment and ultimately increase the tax burden on every other business.

In any event, it is very factually wrong to say they aren't subsidized, as the OP did.

Mile High Mania
05-12-2011, 05:14 PM
Did you know that only 5% of the world's supply of petroleum is controlled by private companies? According to Forbes.com, that's the case... 95% is controlled by various governments.

Simplex3
05-12-2011, 05:40 PM
Giving an industry a special tax break is just a way to hide the subsidy, because some people see "tax cut' and think its good, where they would see "subsidy" and think its bad. There is no economic distinction.

Some people see taxes going up as a tax hike, others see it as tax cuts being reverted.

Simplex3
05-12-2011, 05:45 PM
Here's the fact of the matter. If you increase the amount of money going from the oil companies to the government that money is all, every freaking nickel, going to actually come out of the pocket of citizens. In increased prices and/or reduced stock prices.

These mythical "companies" you all rail against are owned by every one of us with a 401k. You are the person you hate.

With that said, I am all for removing every government tax break and subsidy. All of them. I'm tired of back room deals being done by politicians to keep their power.

mlyonsd
05-12-2011, 06:13 PM
Giving an industry a special tax break is just a way to hide the subsidy, because some people see "tax cut' and think its good, where they would see "subsidy" and think its bad. There is no economic distinction.I read it as oil companies are given tax credits only dependent on what they invest their money in, where they are taking a risk. Yes or no?

HonestChieffan
05-12-2011, 08:12 PM
Giving an industry a special tax break is just a way to hide the subsidy, because some people see "tax cut' and think its good, where they would see "subsidy" and think its bad. There is no economic distinction.

If I buy a new sprayer for my business, I can deduct the investment. Does that mean I have a subsidy? If I buy new fence material to keep my cattle on my property I can deduct the expense. Is that a subsidy?

If it was a subsidy, I would not have to spend the money at all. I would get a sprayer allowance check regardless of my spending. Or I would get a fence subsidy based on the number of miles of fence I maintain even if I spent zero.

Those who have never operated a business would learn a lot from those who have before they toss out buzzwords that they have no understanding of.

We as business owners pay taxes on income profit...that is gross revenue minus expenses in simple terms. That explains deductions from a small business standpoint.

Ugly Duck
05-12-2011, 08:41 PM
In any event, it is very factually wrong to say they aren't subsidized, as the OP did.

Dude... the "OP" is Faux News. What did you expect?

patteeu
05-12-2011, 11:19 PM
Giving an industry a special tax break is just a way to hide the subsidy, because some people see "tax cut' and think its good, where they would see "subsidy" and think its bad. There is no economic distinction.

I think it depends on the type of tax break. In this case, I suspect you're right, but I'm not familiar with the tax breaks available to the oil industry.

Given that our income tax is philosophically a tax on income minus expenses required to generate that income, a tax break based on legitimate business expenses is less like a subsidy (in fact, I'd say it's economically distinguishable from a subsidy) than a tax break not based on a legitimate business expense.

Deducting the cost of a chainsaw that you use in your job as a lumberjack is not a subsidy. Deducting home mortgage interest or charitable donations or the cost of energy efficient windows is a subsidy.

Direckshun
05-12-2011, 11:28 PM
Oil and gas production is actually one of the most subsidized industries in the country.

http://www.nytimes.com/2010/07/04/business/04bptax.html?pagewanted=print

Surprise surprise, a Republican politician on Fox News lied to me.

It's fucking gospel music to DC, though.

mikey23545
05-13-2011, 12:06 AM
Surprise surprise, a Republican politician on Fox News lied to me.

It's ****ing gospel music to DC, though.

There is no lie...You're proving just what the OP was saying, that liberals are either too stupid or too intellectually dishonest to tell the difference between subsidies and tax breaks.

With you it's massive amounts of each.

mikey23545
05-13-2011, 12:10 AM
Surprise surprise, a Republican politician on Fox News lied to me.

It's ****ing gospel music to DC, though.

Also, you seem to have missed this little factoid:

"Democratic Party 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."

FD
05-13-2011, 01:21 AM
If I buy a new sprayer for my business, I can deduct the investment. Does that mean I have a subsidy? If I buy new fence material to keep my cattle on my property I can deduct the expense. Is that a subsidy?

If it was a subsidy, I would not have to spend the money at all. I would get a sprayer allowance check regardless of my spending. Or I would get a fence subsidy based on the number of miles of fence I maintain even if I spent zero.

Those who have never operated a business would learn a lot from those who have before they toss out buzzwords that they have no understanding of.

We as business owners pay taxes on income profit...that is gross revenue minus expenses in simple terms. That explains deductions from a small business standpoint.

There is a difference between allowances that are given to all businesses and that are economically justified and tax credits that come through intensive lobbying and that merely reward the industry with political giveaways. My personal opinion is that the corporate tax should be set to 0%, but at the same time, as long as we have a rate above that, individual industries shouldn't be given special subsidies like the oil industry is. These subsidies distort investment and ultimately increase the tax burden on all other businesses as well as consumers, which are clearly negative outcomes.

FD
05-13-2011, 01:27 AM
Here's the fact of the matter. If you increase the amount of money going from the oil companies to the government that money is all, every freaking nickel, going to actually come out of the pocket of citizens. In increased prices and/or reduced stock prices.

These mythical "companies" you all rail against are owned by every one of us with a 401k. You are the person you hate.

With that said, I am all for removing every government tax break and subsidy. All of them. I'm tired of back room deals being done by politicians to keep their power.

I don't know who this post is directed at, but your prior post is directed at me and I'm worried this is, too. I'm not "railing" at any companies. I definitely do not have a negative opinion of oil companies. To the extent that they lobby for and successfully achieve special taxpayer subsidies, that is just them doing their duty to maximize shareholder value. The real problem is the politicians granting them the special subsidies that distort the overall economy and harm the taxpayer in the process.

And for the record, "every freaking nickel" of the subsidy is not passed on to the consumer. Thats pretty naive.

Amnorix
05-13-2011, 07:13 AM
For whatever it's worth, there's an entire industry around selling limited partnership interests in oil and gas exploration because, apparently, you'll either hit it and make great money, or it's a great tax break.

Or something. I admit I don't know much about it, but I do know that the benefits are such that it's unusually good compared to similar investments in higher risk securities.

FishingRod
05-13-2011, 10:03 AM
http://live.washingtonpost.com/democrats-propose-cuts-for-big-oil.html


This is a good Q&A

mlyonsd
05-13-2011, 11:16 AM
http://live.washingtonpost.com/democrats-propose-cuts-for-big-oil.html


This is a good Q&AVery interesting.

FishingRod
05-13-2011, 11:51 AM
Q.
OIL FAT CATS
Why are the oil companies ruining America? Is it their greed or hatred of the environment?
• –
May 11, 2011 2:10 PM
• Permalink
A.
Brian Johnson :
Supporting 9.2 million jobs, contributing to 7.7% of GDP, paying an average upstream wage of $98K a year, paying the Treasury $87 million everyday...is that ruining the country?
– May 11, 2011 2:56 PM
Q.
THE GAME IS OVER
Since the conservative side of the Supreme Court has decided that corporations are just like people, shouldn't they pay taxes? I mean after all I pay taxes. Everyone else I know pays taxes. I don't get any tax breaks, so why should they? And don't give me any crap about taxes and job creation. It's a crock and everyone knows it. Just like trickle down econ. The oil companies have screwed the American people for the last decade. The DEMS should stand firm on this and let Big oil know that the game is over. I can't wait to hear Mr. Johnson's comments. I'm sure it will be entertaining.
• –
May 11, 2011 12:18 PM
• Permalink
A.
Brian Johnson :
We do pay taxes, a lot of taxes. We've paid $1 trillion in just income taxes between 1980-2000. We pay $87 million a day in rents, royalties and income tax payments. Our effective income tax rate is 41%. Between 2005-2009 we've paid $376 billion in come taxes. Not really entertaining...but true.
– May 11, 2011 2:53 PM