Happy 100th Birthday, Big Oil Tax Breaks

Automatic across-the-board budget cuts will take hold on Friday, affecting job growth, state education programs, environmental agencies, and women’s health programs. The sequester actually shares an important anniversary — with Big Oil tax breaks. It is not as well-known a date, but one type of deduction, the percentage depletion allowance, celebrates its 100-year anniversary today.

Depletion allowances let oil companies treat the oil in the ground as capital equipment, and thus allows them to write off a certain percentage for each barrel that comes out. (See more here.)

The year 1913 marked the first time a Big Oil subsidy was written into the tax code. The Revenue Act of 1913 allowed oil companies to write off 5 percent of the costs from oil and gas wells beginning March 1 of that year. (For reference, see pages 172-174 of the Act.) A century later, oil companies can now deduct three times this rate, at 15 percent, although the very largest companies no longer qualify. The percentage depletion subsidy also increases when prices are high, at the same time that oil companies enjoy greater profit. It can even eliminate all federal taxes for independent producers.

A Center for American Progress report estimated that closing this tax break would save $11.2 billion over 10 years.

President Obama has called on Congress to eliminate the percentage depletion allowance, along with a series of other tax breaks totaling $4 billion annually. Even Ronald Reagan once asked for the same in a 1985 speech on tax reform:

“Under our new tax proposal the oil and gas industry will be asked to pick up a larger share of the national tax burden. The old oil depletion allowance will be dropped from the tax code except for wells producing less than 10 barrels a day. By eliminating this special preference, we’ll go a long way toward ensuring that those that earn their wealth in the oil industry will be subject to the same taxes as the rest of us.”

However, congressional Republicans taking the lion’s share of oil and gas industry contributions have refused to close century-old loopholes in order to raise revenue. A number of specialized Big Oil tax breaks allow the top oil companies to cut their tax bill dramatically, sometimes half (or less) of the top corporate rate. It is not as if Big Oil is struggling: Last year, the five largest oil companies — BP, Chevron, ConocoPhillips, and ExxonMobil — earned $118 billion profit at a time when consumers paid record-high gas prices. This haul follows after a year the companies earned a record $137 billion profit.

18 Responses to Happy 100th Birthday, Big Oil Tax Breaks

  1. Mike Roddy says:

    This is one of the more obvious examples of America’s status as a petro state, and shows us what a mountain we have to climb to enact things like carbon taxes. There is no justification whatsoever for these tax breaks, which are enabled by bribing Congressmen.

  2. Zimzone says:

    I’m going to write to the Office Of Pipeline Safety, (OOPS) & demand a tax refund! /snark

    Snark aside, isn’t a 100 years of tax breaks for the most profitable industry on the planet enough?
    Let’s move them over to become solar subsidies & mover forward before we drown in our own sludge.

  3. Sasparilla says:

    Absolutely Mike, well said.

  4. Peter says:

    BP is Communist Chavez’s Company — they give low cost oil to poor Americans to heat their homes; just ask Joe Kennedy, a Socialist Progressive.

    All Data are for Fiscal year 2012:

    Chevron’s Profit Margin: 10.8%
    Taxes Paid: $19,996,000,000

    Exxon’s Profit Margin: 8.4%
    Taxes Paid: 31,051,000,000

    Shell’s Profit Margin: 4.5%
    Taxes Paid: 8,302,000,000

    ConocoPhillips’ Profit Margin: 14.5%
    Taxes Paid: 7,942,000,000

    BP’s Profit Margin: 6.9%
    Taxes Paid: 12,737,000,000

    Google’s Profit Margin: 21.4%
    Taxes Paid: $2,598,000,000

    Apple’s Profit Margin: 26.7%
    Taxes Paid: $14,030,000,000

    NOTE: ALL manufacturing, mining companies and assembly companies are allowed Depletion and/or Depreciation; it would be unjust and un-Constitutionally discriminatory to take away one sector’s Depletion deduction and NOT ALL sectors’ depletion and depreciation deductions!

  5. Lifesart says:

    Makes you wonder who are the really entitled.

  6. Kathy Selvage says:

    Big Oil celebrates its 100th year of panhandling. Wouldn’t you think it was time to step away from the public trough?

  7. Jack says:

    We no longer have to wonder. Its pretty obvious.

  8. Tom Hellene says:

    So Peter’s comment seems to be the only one with any facts or consideration of what the article really said. The depletion allowance is similar to depreciation of capital equipment. Unless the costs of developing a field is somehow written off twice, which I doubt (but don’t know for certain) the write-off seems like appropriate accounting.
    But, far more important from the article is the statement that the largest firms are no longer eligible for the write-off, which would include all the big firms typically mentioned in these discussions.

  9. Camburn says:

    Don’t forget GE. 5 Billion of profit and no tax bill. IN fact, because of energy credits, it got a refund.

    Go figure eh?

  10. Camburn says:

    renewal energy tax credits.

  11. Ozonator says:

    Tax breaks for the EssoKochs over military preparedness in the extreme GOP’s sequester and other budget blocks means our mortal threats will know just when to attack. This is something they almost impeached President Obama over when he stated an end-date for Afghanistan troops.

  12. Andy Olsen says:

    The oil depletion allowance is just another double dip. Oil companies claim depreciation on all equipment needed to explore and extract oil. It’s not like a grocer selling goods they purchased wholesale.

    There is no rational reason to have a depletion allowance.

  13. MaryJoan Tully says:

    APPALLING! Must be changed in the spirit of fairness to the American public.

  14. Mulga Mumblebrain says:

    Peter, you immediately render yourself contemptible and risible by abusing Chavez (apparently as an insult) as a ‘Communist’. He is a socialist and has won numerous utterly free and fair elections (certainly freer and fairer than many US elections).

  15. Mulga Mumblebrain says:

    Are you implying that greed is irrational? Better watch out, or you’ll get a ‘Homeland Security’ file.

  16. Michelle Strozier says:

    This is a total embarrassment, my father worked in the Oil Industry most of his life yet I would promise you he would be appalled at this “Subsidy not being stopped, that it was time and needed!” I too believe that the Republicans pockets are lined with Oil money or they would see that this is no longer needed as the Oil Industry has changed and grown into a Trillion Dollar Industry. But they don’t want to give up all the money that they get from the BIG OIL and OTHER BIG CORP INDUSTRIES!!! It is an outrage and it all needs to stop and the Republicans need to stop holding the AMERICAN PEOPLE HOSTAGE FOR THERE OWN GREED!!!!

  17. Wastrel says:

    I’m glad you said that. I’ve been trying to tell people where the real ’emtitlements’ are for several years.

  18. Mulga Mumblebrain says:

    Are you ‘celebrating’ the privately owned so-called ‘Federal Reserve’ as well?