A measure in the Senate to strip the US oil industry of some of the tax advantages it enjoys (some particular to their industry, others available to all businesses) was defeated in the Senate yesterday, even after the President took to the Rose Garden to publicly beat up on those bad, bad oil companies. There are a number of interesting political angles to this story.
First, the President knew he'd lose this one, but the loss--in his view--constitutes a victory. Let's fact it. Gasoline prices are his Achilles heel right now, and with Israel and Iran sizing each other up and the summer driving (read: demand) season coming, the prospect for lowering prices does not appear great. Were the Congress to call Mr. Obama's bluff and strip the breaks he sought, there would be immediate upward pressure on gasoline prices and the President would share in the blame. But he knew they wouldn't do that--he knew Republicans would reflexively vote against it, and he knew there were several vulnerable Democrats in oil states who would also vote against it. So he gets to play to his socialist, anti-business base by demonizing oil companies, without actually having to suffer the political pain of even higher prices. Two-point takedown for Obama.
Next, what was interesting to me was what would have been done with the $24B (over 10 years) generated by eliminating these tax breaks. Half would have gone to--you guessed it--subsidies and tax breaks for the "green energy" mafia. The other half would have gone to "deficit reduction". I might have been more favorably disposed to the legislation if ALL of it were targeted at deficit reduction, but the goodies in the bill for Mr. Obama's supporters in the already over-subsidized and incredibly unprofitable "green energy" industry make this look like straight up payback.
Finally, I really think energy is going to be an issue that Mitt Romney can own in this election. The President talks about an "all of the above" strategy, but his actions undercut that. Romney needs to talk about the prospect of real, tangible energy security based on reasonable growth in renewables, nuclear energy, gas, coal and oil--to include fracking and oil sands. He must make a straightforward case that the one of the very few industries with the capacity to bring us out of economic turmoil--while simultaneously increasing our energy security--is our domestic, carbon-based energy industry. That's where the jobs are, that's where the growth is, that's where energy security will come from.
What is he playing, "constituency of the week"? First we had the trumped up contraception issue which was basically a wash politically. Then they cherry pick a weeks old shooting, white guy (at least a white guy name) kills black kid, and the President chimes with an opinion? Are you kidding? The President of the United States offers up his views on a racially charged death when the investigation has not even been completed. How Goddamned stupid is that? Now his polling is telling him he's getting killed at the pump. So he goes after the big bad oil companies. He should ask Jimmy Carter how that worked out for him.
ReplyDeleteI thought this guy was the smartest mofo in the world? I guess not. But I sorta feel for him. When you boil it all down it's real hard to defend the indefensible. Ask the Solicitor General (he had a worse week than Obama).
Let's say I don't think of them as "big bad oil." Why should they of record profits get tax breaks? And good for them on the profits.
ReplyDeleteGreat question, Anon. Let's dive into it.
ReplyDeleteFirst, there were provisions in this bill that would have stripped the oil industry's right to tax advantages that other businesses have. To me, that's a non-starter.
So then, let's move to those tax advantages enjoyed only by the oil industry.
1. At some point in our history, we considered it useful to create these breaks. Oil prospecting and drilling is a capital intensive business--huge amounts of capital. Profits are a function of revenue, and the margins in the oil industry are simply not out of line. The numbers are high, because we are talking about hugely capitalized companies--which we need to prospect and drill for oil. When prices are high--as they are now, the concept of special subsidies for oil strike reasonable people as irresponsible. But oil prices aren't always high---and we still need the oil industry to prospect and drill for more. Not a terribly strong defense, but the best I can do for now.
We--as a people--subsidize a TON of things. We subsidize art that no one wants or needs. We subsidize transportation that no one uses. We subsidize birth control which is of course, the most important thing in the world.
The concept of going after oil--when so many other less useful things are subsidized--strikes me as blatantly political. That of course, doesn't mean it isn't right. But let's face it--this was ENTIRELY political. The President would have been screwed if the Republicans had said, "to hell with it" and voted with him. There would have been an almost instant rise in prices (oil companies would not wait for the tax hit, they'd build it into current pricing)--and fingers could be pointed directly at the President.
But then--lots of Congresscritters would lose their jobs too...which is why the President felt safe in the first place.
Thanks Wahoo. I see your point.
ReplyDeleteI found this little bit in a congressional research service report http://hotair.com/wp/wp-content/uploads/2011/05/crs-oilgas.pdf while researching my own question:
"Conclusion
On the one hand, the tax changes proposed in Table 1 would increase tax collections from the oil
and natural gas industries and may have the effect of decreasing exploration, development, and
production, while increasing prices and increasing the nation’s foreign oil dependence. These
same proposals, from an alternate point of view, might be considered to be the elimination of tax
preferences that have favored the oil and natural gas industries over other energy sources and
made oil and gas products artificially inexpensive, with consumer costs held below the true cost
of consumption, when the external costs associated with environmental costs and energy
dependence, among other effects, are included.
Whichever view is adopted, the real effects of these proposals on oil and natural gas production,
consumption, and import are likely to be small relative to both the federal deficit and the revenues
of the oil and natural gas industries."
The 2nd paragraph supports your view this is a political move. Unless I'm wrong, these many of these breaks only kick in when oil prices are low and only apply to companies that aren't "big oil."
Great stuff Anon--thanks for the solid info.
ReplyDeleteCW - In your comment I hope I am incorrect in my inference that you believe the oil companies are "subsidized" as our President has been repeating ad nauseum on his "I'm a pro-energy President" US tour. The oil companies are, flat out, NOT subsidized. The energy industry that IS subsidized is the so-called "green energy" industry--the Solyndra's etc. Obama knows the difference between the government's decision to allow American's to keep more of the money they earn (aka "tax exemption") and the government's decision to take more money from some American's and give that money to other Americans (aka "subsidy") yet he hopes there are sufficient voting USAmericans (or voting Central or South Americans) who do not know the difference. We need to be careful not to further the attempted illusion.
ReplyDeleteCW - In your comment I hope I am incorrect in my inference that you believe the oil companies are "subsidized" as our President has been repeating ad nauseum on his "I'm a pro-energy President" US tour. The oil companies are, flat out, NOT subsidized. The energy industry that IS subsidized is the so-called "green energy" industry--the Solyndra's etc. Obama knows the difference between the government's decision to allow American's to keep more of the money they earn (aka "tax exemption") and the government's decision to take more money from some American's and give that money to other Americans (aka "subsidy") yet he hopes there are sufficient voting USAmericans (or voting Central or South Americans) who do not know the difference. We need to be careful not to further the attempted illusion.
ReplyDelete