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Repealing tax breaks for oil companies: common sense vs. congressional thuggery

The oil industry is no more to blame for the price of gas than Kay Jewelers is to blame for the high price of gold. Any tax changes should be done as part of broader corporate tax reform, which will apply universally, and not just reflect a wave of political antagonism.

By Michael Lynch / May 30, 2011

Winchester, Mass.

In Washington, there is an ongoing debate about removing some tax deductions for the oil industry. The president and his party are attempting to change these so that the industry pays higher taxes, then use the money to fund new, cleaner-energy technologies. Republicans are resisting because they oppose tax increases generally, and worry that higher taxes on the oil industry will mean higher prices for gasoline.

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Although Democrats narrowly lost a key vote on this issue earlier this month, you can be sure that political demagoguery of “Big Oil” will continue, setting a bad precedent for other American industries that may find themselves out of favor in Washington.

Reality check

That’s too bad, because a number of facets of this debate are off-target – if not downright mythical – and they can be remedied with a little common sense and attention to actual numbers.

First, the oil industry is no more to blame for the price of gas than Kay Jewelers is to blame for the high price of gold. Middle East unrest and the Federal Reserve’s quantitative easing – which is lowering the value of the US dollar – are far more responsible.

Second, oil industry profits, while currently high, are a relatively miniscule part of what consumers pay at the pump. The price of crude, federal, state, and local taxes, refining costs. and distribution expenses all play a much bigger role.

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Moreover, perspective matters in this debate. The $4 billion in “unfair” tax breaks that oil companies receive are significantly less than the $7 billion a year in ethanol subsidies, even though ethanol only accounts for 10 percent of what the petroleum industry produces domestically.

That said, far be it from me to argue that taxes don’t need to be simplified or rationalized.

Over the years, Congress has added numerous loopholes and exemptions, some well-meaning, others to benefit their constituents (voters or donors), to the point where many Americans feel like the pre-Revolutionary French. That government had given so many exemptions to the church and nobility that it was not only always broke, but the middle class bore much of the burden.

But complaints about the particular proposals now being floated do not address the overall tax bill for the petroleum industry; rather they focus on specific deductions. The most dangerous tax hike proposed is the elimination of “dual capacity” protection for US oil companies overseas.


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