06 Apr 2012

On the “Big Oil Tax Loopholes”

Climate Change, Economics, Oil, Shameless Self-Promotion 24 Comments

I have a commentary at the Institute for Energy Research (IER) on the Administration’s recent efforts to stick it to the big oil companies. An excerpt:

The rhetoric concerning the domestic manufacturing deduction is particularly silly. Back in 2004 Congress changed the tax code to encourage companies to keep their production activities within the United States. This was not a feature unique to fossil fuel companies…

In the interest of tax simplification, it might make sense to eliminate the Section 199 domestic manufacturing deduction altogether, ideally coupled with a reduction in marginal tax rates across the board. But what does not make sense—and what would only make the tax code even more convoluted—would be to leave the Section 199 domestic manufacturing deduction in place for every other qualifying industry, but to amend it so that oil and gas activities no longer qualify. In other words, the Administration is carving out an exception to an existing loophole so that oil companies pay more taxes than other manufacturers. This is what the Administration is proposing, and describing as “closing loopholes for Big Oil.”

24 Responses to “On the “Big Oil Tax Loopholes””

  1. Rick Hull says:

    Unrelated to this post save temporally: a Bob video was posted to ZH 45 minutes ago: http://www.zerohedge.com/news/what-capitalism

    • Major_Freedom says:

      I wonder if statists can hijack the term “pro-private-property-voluntarist-individualist-anarchist.”

  2. Greg says:

    If you read the president’s message carefully, the President is not “claiming that imposing a tax hike on the oil sector won’t affect its output”. He’s saying it won’t “hurt” the oil companies. He’s saying they are already making more oil than ever, and he wants to tap into that to fund renewables…it’s the old, “the rich won’t even notice if we take a billion here or a billion there” argument. Then he claims that investment in these other technologies will bring the cost of operating vehicles down. He doesn’t claim one way or the other, I think, what taxes will do to the cost of gas, itself. He’s skirting the reality that it will increase the, and knows it, I think. It’s really very clever.

    as an aside, I like Obama’s statement that we have 2% of the known reserves but use 20% of the oil. While that could be completely true, it’s a dumb statement. Let’s say there are 100 gallons of milk in the world and I have 2 gallons (2%). Now assume there are 5 people that drink a cup of milk a day. I therefore consume 20% of the milk consumption in the world. My 2 gallons is plenty to supply my 1 cup a day habit….

    The second half of your article was really informative, though, thank you.

    • Bob Murphy says:

      If you read the president’s message carefully, the President is not “claiming that imposing a tax hike on the oil sector won’t affect its output”.

      I did read the statement carefully, and I think that he is claiming what I said he is claiming. Here’s the quote:

      The oil industry is doing just fine. With record profits and rising production, I’m not worried about the big oil companies. With high oil prices around the world, they’ve got more than enough incentive to produce even more oil.

      You’re saying he’s not talking about the oil companies have enough incentive to produce oil?

      You’re right that in these remarks, he is a little more careful about talking about high gas prices and then pivoting to his proposal to hike taxes. But even in these remarks, he is clearly saying that this tax hike won’t reduce oil output.

      • Richie says:

        With record profits and rising production, I’m not worried about the big oil companies.

        Why no mention of oil companies’ profit margins? Should he not take into account the marginal cost to increase an extra unit of output?

        • Richie says:

          Should read, “produce an extra unit of output.”

        • Major_Freedom says:

          Why no mention of oil companies’ profit margins?

          Because that would drastically reduce the reported numbers, and thus fail to rabble rouse the yokels.

          My favorite is when an oil company earned $300 million profit this year on $10 billion capital, compared to $200 million last year on $10 billion capital, and they are reported to have made a 50% higher profit.

      • Keshav Srinivasan says:

        Obama is saying that the elimination of loopholes won’t reduce oil output relative to what it is now. He is not saying that it won’t reduce oil output relative to what it otherwise would have been in the future.

  3. Dan (DD5) says:

    It wouldn’t even matter if this “loop hole” really did only apply to “oil and gas activities”. It would still be silly and counterproductive to remove such a loop hole for the benefit of higher taxes and more government spending.

  4. Daniel Kuehn says:

    Ugh.

    This is what keeps me saying “ya, I vote Democrat a lot” instead of “ya, I’m a Democrat”

    • Anonymous says:

      It’s all about appearances rather than substance with you, isn’t it?

      • Daniel Kuehn says:

        ????

        How is only voting for the good ones or withholding blanket approval because even the good ones mess up “all about appearances”? I would have thought what I said implied exactly the opposite of this. If it was a party I was consistently happy with I probably wouldn’t mind accepting a party label.

        • David R. Henderson says:

          Daniel Kuehn,
          Good for you. Anonymous really missed the boat on this one.

          • Daniel Kuehn says:

            I’ve found that the probability of missing the boat increases considerably when the commenter is anonymous… it’s a skin in the game argument of sorts, I guess.

            • Ken B says:

              I’m not sure that’s quite fair. Similar to you,and for the same reasons, I support Republicans a lot, but I am not a Republican. And you don’t know my name.

            • David R. Henderson says:

              Good point.

        • Richie says:

          DK, I’ll stick up for you here. Anonymous makes no sense.

    • Silas Barta says:

      I appreciate all the work you’ve done to correct your friends who claim that Big Oil gets “massive subsidies”, I can definitely see the impact in that meme dying out.

      *rolls eyes*

      • Daniel Kuehn says:

        First, I don’t know of any friends (or even friendly acquaintances) of mine that say this offhand, so I’m not sure who there is to “correct”.

        Second, the property rights system we have that doesn’t internalize costs of carbon is a pretty massive subsidy in my mind.

        However, being punitive or self-righteous about the industry that extracts the stuff is a dumb way of addressing that. You address that by internalizing the costs, which will lead to innovation towards carbon-based fuel that’s actually cleaner, other fuels, or conservation/efficiency in the use of carbon.

        • Major_Freedom says:

          You address that by internalizing the costs, which will lead to innovation towards carbon-based fuel that’s actually cleaner, other fuels, or conservation/efficiency in the use of carbon.

          Yay! I agree.

  5. joshua says:

    “the Administration is carving out an exception to an existing loophole”

    So it’s a loophole loophole.

    • Bob Murphy says:

      Believe it or not Joshua, someone originally tweaked my draft to say “a loophole to a loophole.” But I thought that wasn’t honest enough and changed it to “carving out an exception to an existing loophole.”

      In contrast, our friends at rival think tanks accuse us of supporting “dirty energy.”

      • Jason B says:

        “In contrast, our friends at rival think tanks accuse us of supporting “dirty energy.”

        This might be off topic, but it’s something I’ve wondered about, so lets say, hypothetically, that hydrocarbon based energy sources weren’t black, but were instead a “soft green” color. And that the smoke/residue generated from the consumption of said sources was indigo. How much different would the propoganda against “fossil fuels” be in light of that hypothetical?

        • Bob Murphy says:

          I guess in that guess Jason B “my side” would oppose black energy and then we’d be called racists.

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