Can Obama Convince Congress To Pay For Infrastructure Investments By Cutting Oil Subsidies?

This week, the Obama administration is rolling out a pair of proposals aimed at boosting the economy: a $50 billion infrastructure package and a $200 billion measure allowing businesses to immediately deduct the cost of their investments from their taxes. I’ll revisit the latter later, but the former is actually a good idea, especially considering the way in which it will (at least partially) be paid for.

The administration wants to finance the package by cutting taxpayer subsidies to oil and gas companies, including one that’s meant to preserve U.S. manufacturing jobs but that oil giants like Exxon continually claim. Federal subsidies to oil and gas companies amount to $45 billion, so there’s ample room to pay for an infrastructure package by getting rid of some of them.

Of course, this is hardly a new idea: the administration has been proposing an end to these subsidies since it came into office, and Congress has yet to go along with the idea. In June, Sen. Bernie Sanders (I-VT) proposed cutting $35 billion in oil subsidies, and was soundly defeated in the Senate on a 35-61 vote.

And pushback from the Big Business community to Obama’s latest proposal was predictably immediate:

One influential lobbyist in the business community told The Hill that trying to use the oil and gas tax incentives to pay for the infrastructure spending is going to be a big problem. “Right now we’ve got considerable consternation about the payfors,” the lobbyist said. “Way to take something that should be bipartisan and make it partisan.”

“I would just say that increasing the tax burden on the oil and natural has industry has consequences,” said a spokeswoman for the American Petroleum Institute, Big Oil’s lobbying arm. “If you make it too expensive to do business here in the states, you run the risk of driving investment and American jobs overseas.”

This is the common refrain oil companies and their defenders use to defend their corporate welfare, but it doesn’t hold much truth. According to Citizens for Tax Justice, “to the extent that tax loopholes targeting the oil and gas industry boost their profits, there is no evidence that the additional profits lead the companies to explore for more oil so that they can increase the supply.” In fact, the Office of Economic Policy at the Department of Treasury has found that removing subsidies for the oil industry would affect domestic production by less than one-half of one percent.

It seems like cutting subsidies to a mature, hugely profitable industry in order to finance infrastructure improvements would be a fairly easy choice, but Congress has found no reason compelling enough to justify actually doing it. And Republican leaders have already voiced their opposition to the Obama’s proposal, with House Minority Leader John Boehner (R-OH) calling it a “double-down on more of the same failed ‘stimulus’ spending.”