Obama and the Subsidies to Big Oil

President Obama was at it again today. Obama was out in the rose garden at the White House telling the folks that we need to do away with the special subsidies to the five biggest oil companies because they make enough already. This is his answer to high gasoline prices -- raising taxes on big oil companies. Everyone with even half a brain understands that raising taxes on oil companies will not make those companies produce more oil in order to bring prices down. Instead, the companies are more likely to raise prices in order to make up for the cost of the new taxes. Obama, however, says that this is a matter of fairness. In other words, even though his plan results in higher rather than lower prices, it is the fair way to proceed, or so he says.

The problem with Obama's constant call to raise taxes on big oil is that no one ever looks at just what he is proposing. So let's break the mold and do just that. There are three main tax provisions that Obama concentrates on.

The first tax provision that Obama wants to eliminate is a tax credt passed in 2005 for all manufacturers operating in the USA. That's right, every mine, every auto manufacturer, every company building refrigerators, all the airline manufacturers, indeed all manufacturers get this tax credit. The idea of the credit was to make it more profitable to do manufacturing and to create jobs in the USA. Obama now wants to treat oil companies differently from all other American industry. Oil is not getting a special subsidy; oil is just getting the same treatment as all other industries.

The second tax provision that Obama wants to erase are the accelerated depreciation of drilling costs. The accelerated depreciation is actually less than most other manufacturing companies get -- those other companies get to expense capital expenditures on plant and equipment this year. And Obama is just plain wrong when he talks about big oil getting this break. The Alternative Minimum Tax for vertically integrated oil companies prevents them from taking this accelerated depreciation. That benefit only goes to the small and medium size independent oil exploration companies; not a penny goes to big oil. But why should that bother Obama. He is never concerned about the truth.

The third tax provision being attacked by Obama is the oil depletion allowance. Here too, Obama is just plain wrong. Big oil does not get the oil depletion allowance. It only goes to small independents, the companies for whom the tax difference actually results in additional drilling and production.

So Obama is after three tax provisions which he says let big oil make obscene profits. Two of the three, however, do not affect big oil. None of the three give oil companies a break that other industries do not also receive. So Obama is just lying on all fronts.

This ought to be enough to show that Obama's plan to tax big oil will not accomplish anything like what he claims. But one final item needs to be noted. The oil industry is one of the largest holdings of pension, IRA and other retirement assets in the country. Tens of millions of Americans have their retirement assets invested in these oil companies. By attacking "big oil", Obama is actually attacking the pension assets held by most people. Maybe it is time for Obama to give it a rest.