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.

A Gas Price Relief Plan That Makes Sense»

Our guest blogger is Sam Davis, Policy Analyst at the Center for American Progress Action Fund.

Americans need immediate relief from high oil and gasoline prices and the government needs to respond. We have two options:

1) The McCain, Clinton “gas-tax-holiday” plan which will remove, for three months, the federal tax levied on fuel at the point of consumption — 18.4 cents for each unleaded gallon of gasoline and 24.4 cents for each gallon of diesel; or

2) The Center for American Progress’ “fuel price reliefbate” proposal that would give 80 percent of American households up to $450 and each independent truck driver $4,000 to partially offset their increased expenses due to the exorbitant rise in fuel prices.

Here’s the rub:

The “gas-tax-holiday” plan does not guarantee whether gas stations will lower the price of fuel by any amount once the tax is rescinded. Instead, oil companies could pocket the extra revenue and families save nothing. However, if the gas stations did drop the price, because the higher the income a household earns the more cars they have and the more miles they drive, under the regressive “gas-tax-holiday” plan, they would save more.

The “fuel price reliefbate” plan on the other hand would immediately relieve households who earn the least, but spend the most on gasoline proportionate to their income. While these households drive less and have fewer cars, they experience the hardship of rising gasoline prices the most not only at the pump but in the supermarket as well. This plan would be paid for by repealing the $23.4 billion in subsidies the government gives to oil companies.

Both plans would take the same exact time to enact, yet only one would guarantee immediate relief and can be paid for without dipping into the monies spent to (re)build our national highway system or adding additional taxes.

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.

Senator Cornyn Says McCain’s Gas Tax Holiday ‘Drives Up The Deficit’»

On Fox News this morning, Sen. John Cornyn (R-TX) discussed rising gas prices and criticized the proposal to pay for a federal gas tax holiday with “revenue from the general treasury”:

Well, the problem with that is, while it would provide some temporary relief, it’s only about 18.4 cents a gallon. It would provide maybe a couple of bucks, as you say, for the fill-up. But the problem is that’s the money we use to build our roads and to repair our aging infrastructure. Others have said, well, we’ll simply fill the gas trust fund up with revenue from the general treasury, but of course that drives up the deficit.

Watch it:

Who is Sen. Cornyn talking about? McCain spokesman Brian Rogers has the answer:

Sen. McCain believes that general revenue transfers should be made to offset the impact on the transportation fund.

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.”