In its last two budgets, the Obama administration has proposed ending a series of tax subsidies collected by Big Oil companies. This year, the target is $36 billion in tax breaks, including nixing deductions that oil companies collect to write-off the cost of drilling. In light of the ongoing oil spill disaster in the Gulf of Mexico, it makes sense to reevaluate whether we want to be using the tax code to subsidize drilling for oil, particularly after oil companies reaped billions in profits during the first quarter of this year.
Last month, I spoke to Rep. Lloyd Doggett (D-TX), who characterized tax subsidies like those received by oil companies as “barnacles on the code” that aren’t fair to working people. Exxon-Mobil CEO Rex Tillerson, however, appeared on CNBC this morning to claim that the tax breaks are necessary for the oil industry to preserve jobs:
We already are probably the most heavily taxed industry in this country, and these tax breaks as they’re characterized — and I think many times they are mischaracterized — are simply provisions in the tax code that are made available to all businesses. I’ll take one in particular, the Section 199 manufacturing tax deduction, was passed by Congress out of a concern that we were losing manufacturing jobs in the country. So now part of the Obama tax proposal is to repeal that Section 199 provision for our industry. It’s not clear to me why a refining job or a petro-chemical job is less valuable than an auto manufacturing job. This is the mischaracterization, in my view, of some of these tax subsidies.
It’s pretty rich to watch the CEO of one of the most profitable companies in American history go on television to insinuate that he will cut jobs if Congress removes his corporate welfare. This year, the company reported first quarter earnings of $6.3 billion, which is up 38 percent from last year. In 2008, it set a U.S. record by making a profit of $45 billion.
Meanwhile, the subsidies that Exxon and other oil companies collect cost the U.S. government billions each year, as Sima Gandhi explained:
It’s hard to believe that oil companies need taxpayer handouts with their prices so high. Yet the government spent nearly $4 billion on oil and gas companies in 2008. Some of these subsidies date as far back as 1919. The specific tax subsidies and how they work have changed over time, but what remains constant is their price tag. Spending taxpayer dollars on already profitable and mature industries doesn’t make sense. Eliminating tax expenditure spending for oil and gas companies would save the government nearly $3 billion next year.
According to estimates from the Treasury Department’s Office of Economic Policy, removing subsidies for the oil industry would affect domestic oil production by less than one-half of 1 percent.
At the same time that it is collecting tax subsidies from the U.S. government, Exxon uses 122 foreign subsidiaries, including 32 in countries that are officially labeled tax havens, to dodge U.S. taxes. It has 18 subsidiaries in the Bahamas, and 3 each in the Cayman Islands, Hong Kong, and Singapore. It also spent more than $27 million lobbying Congress last year, and another $3.3 million so far this year.