WASHINGTON — President Barack Obama is on a mission to end subsidies for big oil companies.
“Right now, $4 billion of your tax dollars — $4 billion — subsidizes the oil industry every year,” he said in New Hampshire earlier this month. “Now, does anyone think that Congress should give them another $4 billion this year?”
“No!” the audience yelled.
“Of course not,” the president said. “Let’s put every single member of Congress on record: You can stand with the oil companies, or you can stand for the American people.”
Obama started the year with a called to end the tax breaks in his State of the Union address in January, and since then has shown no signs of turning down the pressure. In addition to the speech in New Hampshire, Obama told Congress to repeal the tax breaks in a press conference earlier this month, then again in his regular radio and online address.
Meanwhile, the industry is denying that such subsidies even exist while environmentalists fear that high gasoline prices and lobbying from the billion-dollar oil industry still stand in the way of a victory that to them is years overdue.
| Recommendation | Description |
| Repeal Expensing of Intangible Drilling Costs | Repeal a deduction that reimburses companies for some drilling costs |
| Repeal Passive Loss Exception for Working Interests in Oil Properties | Repeal an incentive for investors to finance oil and gas projects |
| Repeal Percentage Depletion for Oil and Natural Gas Wells | Repeal a deduction of independent oil companies’ gross income |
| Repeal the Domestic Manufacturing Deduction for Oil and Natural Gas Companies | Exclude oil and gas companies from a deduction intended to increase domestic employment in manufacturing |
| Increase Geological and Geophysical Amortization Periods | Increase the time over which the federal government reimburses oil and gas companies for geological and geophysical expenses |
Source: Congressional Research Service. Table by Chris Kirk/Medill.
A war of words
The $4 billion in tax benefits that Obama wants to see repealed are spread out among several tax policies, and underlying the debate about whether Congress should change these policies is a disagreement about whether they actually qualify as oil subsidies.
“We continue to hear about the need to eliminate subsidies for the industry,” said Jack Gerard, president of the American Petroleum Institute, in a news release. “The industry receives not one subsidy.”
To Gerard, Obama is trying to repeal subsidies; he’s trying to raise taxes on an industry that is already “paying its fair share.”
That’s because some of the tax policies under discussion do not apply to the oil industry specifically. Rather, they apply to several industries, although Obama has singled out the oil industry out for exclusion.
For example, one tax policy in Obama’s crosshairs is a broad tax deduction passed in 2004 that all manufacturers can claim. Obama is proposing that Congress modify the policy so companies in the oil industry cannot claim it.
But there are also tax policies that benefit the oil and natural gas industry directly by, for example, reimbursing companies for some of their exploration and production costs, according to the Tax Policy Center.
The continual conflict
Whatever they’re called — “subsidies” or “tax breaks” or “tax expenditures” — they involve taxpayer money helping out the oil industry, sometimes incidentally, sometimes purposefully, and environmentalists and fiscal conservatives have been trying to put an end to some of them for decades, said Benjamin Schreiber, an energy tax analyst for Friends of the Earth, an environmental group.
In times of budget crises, the movement would gain momentum but still fall short of its goal, despite the fact that seven out of 10 Americans want to see the subsidies repealed, according to the Yale Project on Climate Change.
The reason, Schreiber said, is that environmental groups are up against huge clout from the oil industry.
“You’re talking about some of the richest and most well-connected corporations in the world,” he said. “As our elections are more and more being decided by campaign contributions, cozying up to big polluters is more and more important for candidates.”
The oil and gas industry spent $146 million on lobbying in 2011 alone, according to OpenSecrets.org, a nonpartisan campaign finance watchdog group. Environmental groups spent about a ninth of that.
Another hurdle, opponents of the subsidies say, is competing with the influence that corporations wield on public opinion.
“Special interest money floods the airwaves with lies,” said Tyson Slocum, an analyst at Public Citizen, a consumer protection group.
Weak regulations of political advertisements make matters worse, he said.
“There are more regulations on Coca-Cola selling its product than on Exxon Mobil lying to the public,” he said.
Citizens United v. Federal Election Commission, a 2010 Supreme Court case that ruled that corporations can make unlimited donations to groups that release political ads, will make it even harder to overcome the industry’s influence, he said.
The politics of the pump
The sudden hike of gasoline prices over the last few weeks has complicated the debate. Which side that hike is helping remains to be seen, but each is trying to use it to win support.
The average national gas price for regular gasoline was $3.83 as of March 12, up about 11 cents from two weeks earlier, according to the Energy Information Administration. That’s also up 26 cents from this time a year ago, but still short of the record average high in recent times of $4.05 in July 2008.
Echoing the president, critics of the tax policies point to these prices as proof that the country’s dependence on oil is too great.
“The only real solution to that problem of spending too much money on gas is use less gas,” said John Cross, a lobbyist on transportation issues for Environment America.
Meanwhile, supporters say ”raising taxes” on the oil industry would make gasoline prices noticeably worse.
“It will stifle job creation, drive up imports — and our trade deficit — and increase the volatility of gasoline markets,” Gerard said at a news conference earlier this month.
They say that Obama’s advocacy on the issue is another example of his hostility toward the oil industry.
“Gasoline prices are higher today at least in part because government has neglected to pay sufficient attention to the importance of producing more of our own oil and natural gas,” said Erik Milito, an administrator of the American Petroleum Institute, at a separate news conference.
Obama has fought this characterization of his energy policy, arguing that he has followed an “all-of-the-above” energy strategy and pointing out that dependence on foreign oil has decreased and domestic oil production has increased during his term.
The candidates for the Republican presidential nomination don’t buy that.
“He doesn’t get credit for the increase; he instead has tried to slow the growth of oil and gas production in this country, and coal production in this country,” Mitt Romney said in a speech in North Dakota the same day Obama gave his speech in New Hampshire. “He should be hanging his head and taking a little bit of the blame for what’s going on today.”
A Congressional Research Service study showed that the tax changes Obama pushed for in the 2012 budget, which are similar to the ones he is pushing now, would make oil and natural gas more expensive for American consumers and increase foreign dependence “on what would likely be a small scale.”
The bigger battle
In the first few weeks of the battle between the people who don’t want the government to “raise taxes” on the oil industry and those who want to see the government stop paying out “subsidies” for highly profitable businesses, there is no clear frontrunner. What is clear, however, is that it’s an election year, and the stakes are high.
Although most Americans are against oil subsidies, they are also sensitive to the price of gasoline and most think the government does have control over short-term gas prices, according to a Washington Post/ABC News poll.
Although 65 percent of the country does not approve of the way Obama is handling gas prices, according to a Washington Post/ABC News poll, what effects these trends have on Obama’s overall approval rating remains unclear.
Some polls show the president’s rating faltering. Others show that it is higher than ever, which may suggest that the president is effectively minimizing the political damage the prices could cause to his re-election bid.
Still, Obama still sees the prices as a political liability. When a reporter at a press conference asked him to respond to allegations that he wants gasoline prices to rise to wean the country off oil, he responded, “Just from a political perspective, do you think the president of the United States going into re-election wants gas prices to go up higher? Is there anybody here who thinks that makes a lot of sense?”
