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Tuesday, April 26, 2011

Tax Subsidies for the oil industry?

Today's news is that Obama is now calling for the end of tax "subsidies" for the oil companies. Wouldn't it be nice if Obama actually said what the subsidies are to which he is referring. It would also be nice were he to tell us all why removal of these supposed subsidies will not raise oil prices. The truth is that removal of the $4 billion will just result in higher gas prices at the pump. Let me explain. There are a great many wells in this country that produce just a few barrels of oil each day or even each week. For many of them, the revenue brought in from the oil is not all that much more than the ongoing cost to produce the oil. If the tax structure for oil producers is changed, many of these small producers will no longer be profitable and will just shut down. That will reduce domestic oil production at a point when the USA is supposedly trying to reduce the need for imported oil. For larger producers, wells that are marginally profitable will also be shut down. That means a further reduction in domestic oil supplies. Apparently most Americans understand that reducing supply of oil will raise prices. Unfortunately, Obama either does not understand this or he thinks that his class warfare rhetoric requires that he attack wealthy oil companies even if the net result is that the average American pays higher prices at the pump.

Obama has got to go!

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