Editorial: Welfare for oil billionaires?
The big five oil companies in the United States — Chevron, Shell Oil, BP America, ConocoPhillips and Exxon Mobil — made $35 billion in profit in the first three months of 2011. In his public radio address last week, President Barack Obama called for eliminating tax breaks for all oil and gas companies — a move that would eliminate about $2 billion annually in tax breaks for these five oil giants and raise $44 billion over the next decade. At $140 billion in profit per year for the big five, that’s less than 1.5 percent of their profit.
And guess what the oil company executives were doing in Washington, D.C. last week? They were testifying to a Senate Committee why those tax breaks were critical to their industry, and how not getting that $2 billion each year to fatten their bank accounts would present a hardship to the country.
ConocoPhillips chairman Jim Mulva went so far as to suggest that a tax increase on oil companies would cost jobs, discourage investment and lead to higher gas prices, according to an Associated Pressstory. Those comments, however, were refuted by the nonpartisan Congressional Research Service, which sent a memorandum to Senate Democratic leaders last Wednesday, which reported that eliminating the tax benefits would have little effect on the price of gasoline or almost no impact on industry profits.
Chevron Corp. chairman and CEO John Watson was astute enough to try to suggest the oil industry didn’t want special taxes, just the same tax breaks other industries get. But, as the New York Timeseditorial noted last week, most of the tax breaks — such as “deductions for well depletion, intangible drilling costs and the like — are unique to the industry. The exception is a deduction for domestic production, designed to encourage all manufacturing companies to invest in this country. But as the research service pointed out, the industry is not going to stop drilling on American territory as long as the oil is there and yielding big dollars.”
Obama had it right in his radio address a week ago when he said that in the face of trillion-dollar deficits and huge profits for the oil industry, “these tax giveaways aren’t right. They aren’t smart. And we need to end them.”
It is absurd not to.
But the Republican-controlled House has been moving in the opposite direction. Not only is the Republican-dominated House of Representatives not pursuing elimination of the tax breaks, but it has recently passed three bills (two just last week) that would expand and accelerate offshore oil and gas drilling.
Unfortunately, President Obama, who once opposed those bills, has moved toward the Republican position, embracing calls of Republicans and Democrats from the Gulf Coast states to reverse the moratorium on drilling imposed after the BP oil spill that resulted from the explosion of Deepwater Horizon on April 20 last year. The explosion, which killed 11 men working on the platform and injured 17 others, blew out the wellhead and sent an estimated 4.9 million barrels of crude oil into the sea before it was capped on July 15 — the nation’s largest oil spill. The moratorium was put in place pending a review of the industry’s safety procedures.
The administration had been granting extensions on a case-by-case basis, but will now allow the Interior Department to grant a blanket one-year extension to all leases in the Gulf that were affected by the moratorium. Obama also said he would speed oil lease sales in the western and central Gulf of Mexico that were postponed last year to the middle of next year, and said he would create a task force to speed along the annual lease sales on Alaska’s North Slope.
The latter is a mistake. Hopefully, the Democratic-led Senate will scrutinize those measures carefully and nix the lease agreements on Alaska’s North Slope at the very least. That small amount of oil (a few weeks worth of America’s consumption) is just not worth the potential environmental damage if another BP-like disaster occurs.
Obama is right to end the tax breaks, but he seems to be playing a bit of presidential election politics with his decision to appease the oil industry in the Gulf states. We hope the Senate rights that lapse in judgment.
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