Big Oil’s Corporate Welfare: Doing The Numbers»

Yesterday, 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:

Joe Scarborough Misremembers: ‘Didn’t Bill Clinton Sign Tax Cuts On Gas?’»

MSNBC host Joe Scarborough sometimes gets his facts wrong. In an interview with Robert Reich today, he misremembered the history of the federal fuel tax:

Didn’t Bill Clinton sign tax cuts on gas back in the 90s?

Reich, somewhat taken aback, replied, “Well, he may have . . .”

Watch it:

Reich was a bit flummoxed because President Clinton did not sign tax cuts on gas — he did the opposite. In 1993 Bill Clinton increased fuel taxes by 4.3 cents, following five-cent increases from his predecessors Reagan and Bush.

As this chart from the American Association of State Highway and Transportation Officials shows, they raised the gas tax to try to make up for its declining ability to pay for the Highway Trust Fund:

Federal Gasoline Tax Rate in Real 2004 Dollars

American Association of State Highway and Transportation Officials

According to the National Surface Transportation Policy and Revenue Study Commission, since President Clinton last signed an increase in the federal fuel tax 15 years ago, the “real Federal gasoline tax rate has decreased by 40 percent as measured by changes in the Producer Price Index for Highway and Street Construction.” The federal gas tax of 18.4 cents now makes up only five percent of the cost of a $3.60 gallon of gas.

Memo To Bush: ‘Magic Wand’ Not Needed To Deal With Gas Prices»

President Bush said Tuesday that he has no “magic wand” to affect gas prices. In reality, gas price is “all about government policy.” As the United States has some of the lowest gas taxes in the world, the price at the pump is dominated by the cost of oil:

Energy Information Administration

The rise in the price of oil in recent years involves four components:

— The effects of supply and demand. Exxon Mobil senior vice president Stephen Simon testified the supply-demand equilibrium is at “somewhere around $50-55 a barrel” — about half the current price.

– The weaker dollar. Since 2001, “the dollar has lost 45% of its value” against the euro. In 2003 one gallon of gas in the U.S. cost $1.50 and 1.50 Euro. Today’s $3.60 gallon of gas costs only 2.25 Euro.

– Geopolitical risk. Since 2003, the United States has been committed to a three-trillion-dollar war in Iraq, the heart of the turbulent oil-producing world. Furthermore, the burning of oil is continuing to increase global warming, “one of the greatest national security challenges ever faced.”

– Speculation. “Investors have looked to commodities
not only as a hedge against inflation but as a hedge against the tumbling greenback.

In recent years, the United States has gotten locked into a vicious circle in which the latter factors worsen each other. Suspending the federal gas tax would exacerbate the problem — in the words of Thomas Friedman, “we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.”

Immediate action to deal with rising gas prices should deal with the root problems, not worsen them. Center for American Progress analysts Sam Davis and Daniel J. Weiss describe how a demand-independent “reliefbate” plan could be paid for by closing several oil tax loopholes. The Washington Post’s Dan Froomkin further recognizes that there are “two hugely significant factors” that President Bush could affect immediately: “the war in Iraq and the value of the dollar.”

But the federal fuel tax is but one brushstroke in a much broader picture. As the Center for American Progress’s energy opportunity agenda states:

The realities of global warming and our growing dependence on oil, much of it imported, will make energy more pivotal than ever to our economic, environmental, and national security fortunes in the 21st century. The challenge we face is nothing short of the conversion of an economy sustained by high-carbon energy — putting both our national security and the health of our planet at serious risk — to one based on low-carbon, sustainable sources of energy. The scale of this undertaking is immense and its potential enormous.

McCain’s Gas-Tax Holiday From Reality Continues»

Two weeks ago, Sen. John McCain (R-AZ) proposed a summer-long “gas tax holiday.” Since then, he’s been faced with the challenge that such a moratorium may sound good but would be terrible policy.

When it was pointed out that the federal gas tax funds critical transportation infrastructure and jobs, a spokesman said McCain would pay the $11 billion tab from the “general revenue.”

When it was pointed out that cutting the federal gas tax would minimally affect the price at the pump, McCain then said his proposal was just “a little psychological boost.”

When it was pointed out today by MSNBC anchor Mika Brzezinski that the tax cut is an expensive and environmentally unsound policy that would do nothing to help American drivers, McCain finally erupted:

Mika, you know what? All it is is it’s not the end of Western civilization as we know it according to some, quote, economists and some around America. It’s just to give Americans a little relief.

He then exposed how out of touch he is with the realities of America by saying:

I think it’s obvious that the lowest-income Americans drive the furthest and probably they spend more on gasoline because of the age of their automobiles.

In fact, lowest-income Americans drive the least, and most of the benefits of the gas-tax holiday would go to high-income Americans.

No amount of bluster can disguise that this proposal — just as it was when Sen. Bob Dole proposed a similar gas tax holiday as the Republican presidential nominee in 1996 — is a violation of the responsible economic principles Sen. McCain has formerly espoused.

UPDATE [5:30 PM]: Michael Bloomberg, the mayor of New York City, tells the Observer a gas tax holiday “would help Chavez, Qaddafi and other people like that.” He also said:

It’s the dumbest thing I’ve heard in an awful long time from an economic point of view. I don’t understand why you think there’s any merit to it whatsoever. We’re trying to discourage people from driving and we’re trying to end our energy dependence. We don’t do that — oh, and incidentally, we’re trying to have more money to build infrastructure. All three of those things go fly in the face of giving everybody $30 a year. The $30 bucks is not going to change anybody’s lifestyle. The billions of dollars that we would otherwise have in tax revenues can make a big difference as to what kind of a world we leave our children.

RNC Celebrates Windfall For Oil Companies»

The Republican National Committee has put out a press release defending Sen. John McCain’s (R-AZ) proposal to suspend federal gas taxes over the summer. The press release claims that the proposal “would save Americans over $6 billion“:

Sen. John McCain Has Proposed Immediate Gas Tax Relief, Which Would Save Americans Over $6 Billion:

Sen. John McCain’s Gas Tax Relief Would Last From Memorial Day To Labor Day. “Hard-working American families are suffering from higher gasoline prices. John McCain calls on Congress to suspend the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day.” (John McCain For President Website, www.johnmccain.com, Accessed 4/22/08)

“A USA TODAY Analysis Showed That McCain’s Gas-Tax Proposal Could Save Motorists $6.8 Billion In Taxes During The Summer.” (Kathy Kiely, “Gas-Tax Holiday Among McCain’s Plans For Economy,” USA Today, 4/16/08)

The RNC fails to provide a link to the USA Today story. Here’s what the article actually says:

A USA TODAY analysis showed that McCain’s gas-tax proposal could save motorists $6.8 billion in taxes during the summer. Len Burman of the non-partisan Urban Institute said the money won’t necessarily go back to consumers. Refineries already are running high to meet summertime gasoline needs, Burman said, so if demand for gas increases, so will prices. He said that means “a huge windfall for refiners,” not consumers.

Reuters reiterates: “Economists said that since refineries cannot increase their supply of gasoline in the space of a few summer months, lower prices will just boost demand and the benefits will flow to oil companies, not consumers.”

Middle Class Families Pinch On Necessities, While The Wealthy Splurge On Luxury Goods»

In the newest twist on the trend of rising income inequality among American families, there is a growing disparity in domestic consumer spending. Forced to decide between filling up the gas tank and paying the electric bills, versus a night out to dinner and new clothes for summer, consumers are sticking to necessities.

What’s interesting, however, is not that Americans are buying only what they need, but that in today’s faltering economy, Americans are changing the very definition of necessity. Starbucks, whose profits have been falling steadily since late 2007, reported earnings last week that disappointed expectations by 11 percent, influenced by “soft sales in California and Florida, where consumers have been hurt by soft home prices and the subprime-mortgage crisis.” Formerly considered an “affordable luxury,” the purchase of a $5 latte has morphed into an extravagance for the average American.

The trend goes far beyond amenities like coffee. As the New York Times reported this weekend:

Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares. … Wal-Mart stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

A study conducted by WSL Strategic Retail yielded similar results:

Fashion accessories, home decor items, premium brands or food and specialty coffees, eating at restaurants and takeout foods, and tickets to entertainment, are the top areas where people are trimming their spending.

This pattern, however, hasn’t extended universally across the U.S. economy. Sales of true luxury goods — jewelry, private jets, contemporary art, expensive real estate, yachts — are higher than ever before, despite their climbing price tags. In some cases, the luxury market is setting records. In real estate, for example, 71 $10-million apartments have sold so far this year in Manhattan. In all of last year, only 17 were sold.

Expensive jewelry sales are the same way. A story on CNN’s American Morning explained this phenomenon, noting that “women or their husbands who are buying this jewelry say to a certain extent if we have the money, if we don’t buy it now, the price is only going up.”

The difference between the haves and the have nots seems to be widening by the day. The wealthiest 10 percent of Americans account for more than half of all U.S. consumer spending, and in an era where families are struggling to pay their bills, put food on the table, and secure healthcare, soaring executive profits are a little hard to swallow.

UPDATE: Calculated Risk has more.

Stimulus Checks Set To Stimulate The Gas Pump — And Economies Overseas»

The Bush administration has made quite a show of distributing the economic stimulus checks ahead of schedule. Going into the mail on Monday, these checks are designed, according to President Bush, to “help Americans offset the high prices we’re seeing at the gas pump, at the grocery store, and will also give our economy a boost to help us pull out of this economic slowdown.”

What Bush doesn’t seem to understand is that these checks may only stretch far enough to pay for the rising price of gasoline.

The US Energy Information Administration estimates that the price for an average gallon of gas will increase by $.40 per gallon this year. If gasoline consumption remains steady at 2007 levels, then it will cost an extra $231 to fuel a car in 2008. CNN explains:

For a middle-income single person, that represents more than a third of their rebate money […] For the average American family with two cars, that’s $462 of additional spending on gas - over a quarter of their rebate.

Hard to argue that these checks are really an economic stimulus, aimed at promoting local retail spending and the purchase of local consumer goods, when the money is going straight into Americans’ gas tanks.

Bush might still have had a leg to stand on if gasoline were produced, refined or processed here in the USA, but that’s one more thing that he forgot: most of our gas comes from overseas. In fact, two thirds of the nation’s oil is imported, mostly from Canada, Mexico and Saudi Arabia.

“The rebate goes into the tank, and then finds its way into economies far from our own,” said Jared Bernstein, a senior economist at the Economic Policy Institute. CNN breaks down cost of a gallon of gas:

In plain English, the bulk of what you pay for this gallon of gas goes to oil—and chances are, that oil had nothing to do with an American manufacturer. It looks like the only “stimulus” here in America is the 7% going to the guy who owns the gas station.

Gas Prices Break a 25-Year-Old Record: $3.51/Gallon»

After months of devastating highs at the pump, gas prices have finally smashed a critical, long-standing record. At $3.51 for a gallon of regular gasoline, the national average for fuel has surpassed the 25-year-old inflation adjusted milestone of $3.39. Not since March 1981 has gas cost this much for Americans.

In a new column, Christian Weller, a senior fellow at the Center for American Progress, highlights what millions of people in this country already know — Americans are spending all their money on gas:

In the fourth quarter of 2007, the last period for which data are available, consumers spent 3.8 percent of their after-tax income on gasoline and fuel, up from 3.1 percent in the fourth quarter of 2006. To put this in perspective, over the course of one year, spending on gasoline, oil, and fuels rose by $91.1 billion.

The increase in total consumer spending for gasoline, oil, and fuel from 2001 to 2007 was four times larger than the increase in spending on housing, 88.4 percent of the increase in spending on credit service, and 56.4 percent of the increase in spending for medical care during the same period. The sharp increase in gasoline spending, in absolute terms, due to higher prices adds as much strain on consumer spending as other, much larger spending items.

In a country where nearly 80 percent of the labor force drives to work, the consumer paycheck is being squeezed. As gasoline prices continue to rise, Americans are being thrown into a corner where they can’t borrow, and they can’t rely on savings.

The escape route of credit cards and bank loans is becoming increasingly more closed off, as the mortgage crisis and credit crunch prevent Americans from tapping as freely into the equity in their homes as they once did. Adding to the nightmare, Americans can no longer just dip into their bank accounts because they’ve already used their savings (personal savings rate during the fourth quarter of 2007 fell all the way to zero).