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Pawlenty Defends Big Oil: Cutting Oil Subsidies Is ‘Ludicrous’

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"Pawlenty Defends Big Oil: Cutting Oil Subsidies Is ‘Ludicrous’"

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Oil giant Exxon last week, on the same day that announced nearly $11 billion in first-quarter profits, publicly whined about the renewed push by Congressional Democrats and President Obama to cut the nearly $4 billion in subsidies that oil companies collect every year. “What they really mean is that they want to increase our taxes by taking away long-standing deductions for our industry,” griped Exxon’s vice president for public and government affairs Ken Cohen.

Echoing those sentiments, 2012 GOP presidential hopeful Tim Pawlenty said over the weekend that cutting oil subsidies would be “ludicrous,” and a “tax increase”:

“I think we should have a discussion about all subsidies,” Mr. Pawlenty told Washington Wire at a forum for 2012 GOP presidential hopefuls. “But the Obama proposal is ludicrous. I mean the worst thing we could do is raise the cost burden on costs on energy and oil…What he’s proposing is a tax increase on energy at a time when the gas is $4 a gallon. It’s preposterous.

But as Sima Gandhi pointed out, contrary to Pawlenty’s pronouncement, oil subsidies don’t lower prices at the pump for American consumers:

A Joint Economic Committee report states, “the removal or modification of [one of these subsidies] is unlikely to have any effect on consumer prices for oil and gas.” The committee found that subsidies do not affect production decisions in the near term. And in the long term the Energy Information Administration explains that the major factors affecting oil prices include the production limits set by the Organization of the Petroleum Exporting Countries and global disruptions in supply. Moreover, the minimal impact of tax subsidies on domestic production (as discussed above) underscores that eliminating tax subsidies will have little, if any, effect on oil prices.

Meanwhile, Pawlenty’s preferred model for lowering gas prices — opening up more federal land for drilling — would have a negligible effect, as even the Republicans’ favorite economist, Douglas Holtz-Eakin, admitted.

Pawlenty’s also decrying subsidy cuts as a tax increase when oil companies are the most profitable companies in the history of the world and are paying very little in taxes. Exxon, for instance, paid nothing into the U.S. Treasury in 2009. The sky-high profits that oil companies have made over the last five years overwhelmingly went to lining the pockets of the companies’ executives.

Cross-posted on The Wonk Room.

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