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Big Oil’s Corporate Welfare: Doing The Numbers

By Brad Johnson on May 6, 2008 at 3:59 pm

"Big Oil’s Corporate Welfare: Doing The Numbers"

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Photo © 2007 by Crashworks at FlickrYesterday, Alex Knapp at Outside the Beltway and Kevin Drum at Political Animal proposed getting a grip on tax proposals for the oil industry. As Drum put it: “[F]orget a windfall profits tax, let’s work first on getting rid of the massive corporate welfare infrastructure we’ve constructed for an industry that really, really doesn’t need it.”

Like Alex, Kevin couldn’t find the numbers behind Big Oil’s subsidies:

If I spent several months on this topic instead of half an hour, maybe I could figure this all out, but surely someone else has already done this?

Alex and Kevin, the Think Progress Wonk Room rides to your rescue.

In its report “Federal Financial Interventions and Subsidies in Energy Markets 2007,” the U.S. Energy Information Administration estimated that FY 2007 subsidies for the oil and natural gas industry totalled $2.1 billion. Center for American Progress Action Fund fellows Sam Davis and Daniel Weiss identify the worst of these tax loopholes and lost royalties that involve Big Oil:

The bipartisan Energy Advancement and Investment Act of 2007 had several provisions to close tax loopholes and recover royalties from big oil companies. These provisions would raise $25.9 billion over 10 years by:

  • Modifying Section 199 to exclude gross receipts from the sale of oil and gas from the domestic production deduction. Raises $9.4 billion.
  • Modifying Section 907 to eliminate the distinction between foreign oil and gas extraction income and foreign oil related income. This would combine foreign upstream and downstream income into a single oil basket for foreign oil and gas extraction income purposes. Raises $3.2 billion.
  • Extending the oil spill liability trust fund tax through 2017, and increase it from 5 to 10 cents per barrel. Raises $2.7 billion.
  • Recovering forgone royalties by establishment of an excise tax on removal price of taxable oil or gas from federal waters in the Gulf of Mexico. Raises $10.6 billion.

A significant bipartisan majority of the Senate voted for these provisions as an amendment to the Senate energy bill on June 21, 2007, but it fell two votes short of the super majority of 60 votes needed to end debate and pass the amendment.

Eliminating the entire “massive corporate welfare infrastructure” for Big Oil is a much weightier task, of course, entering into the realm of overall corporate tax policy. The Wonk Room has done extensive analysis of Sen John McCain’s (R-AZ) corporate tax proposals and how they would benefit Big Oil.

As economist Reuven S. Avi-Yonah writes in a Wonk Room report, Sen. McCain’s “economic stimulus plan” involves a $1.7 trillion increase in corporate welfare by cutting the corporate tax rate from 35 to 25 percent and by allowing first-year expensing of equipment purchases — a potent new form of tax sheltering.

Domestic Policy Advisor James Kvaal has written in the Wonk Room that the cut in the corporate tax rate alone would deliver about $3.8 billion in tax cuts a year to the five largest American oil companies:

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