Why Can’t We Kill Big Oil Subsidies?

One More Time With Feeling: Obama Calls to Kill Big Oil Subsidies

Every year, the American taxpayer writes a check to Big Oil — and that’s on top of buying petroleum-based products and paying through the nose for increasingly expensive gasoline. Uncle Sam also directs billions of dollars to the likes of ExxonMobil and Chevron, despite the fact that they’re some of the most profitable companies on earth. These companies receive $4 billion in what the NY Times calls “sweetheart subsidies” every year (and much, much more than that from other tax breaks and subsidies).

For a nation screaming about a growing deficit, trimming this extraneous bonus to oil fat cats seems like an easy starting point. So, Obama is taking aim at slashing the subsidy yet again, this time in order to help pay for his jobs plan. But pundits are already saying it won’t work — so why can’t we kill these godforsaken big oil subsidies?

Here’s the Wall Street Journal:

Mr. Obama also proposed raising $41 billion over 10 years by reducing or eliminating some tax credits and allowances for oil and gas companies, including repeal of a deduction for intangible drilling and development costs and eliminating one method for recovering the capital costs of wells.

Obama tried cutting oil subsidies in his very first federal budget proposal, and it didn’t fly. He and the Democratic members of Congress tried again earlier this year, hoping that the Tea Party’s incessant yelling for spending cuts would translate into Congressional support for one of the most obvious spending cuts in the history of spending cuts. But no such luck.

And get this:

The true amount we pay in oil subsidies is waaaaaaaaaaaaay more than $4 billion a year. In fact, the far-right libertarian think tank the Cato Institute once calculated the true cost of subsidizing oil to be in the range of $78-150 billion — yep, billion — per year. A lot of these expenditures come from the massive amount of security needed to protect oil, both at its source in volatile regions and along international shipping routes ’round the world. The US gov expends much effort and capital to help safeguard the oil companies’ product and operations — it’s in the national interest, after all, that everyone be able to continue purchasing Exxon gasoline.

So you’d think that paring a comparatively meager $4 billion from the massive font of cash and government support that Big Oil enjoys might be a reasonable proposition this time around. After all, it’s for a good cause this time! It’s to pay for a jobs program that would help put people to work — instead of continually increasing the profit margin of uber-profitable companies!

But you’d be wrong. The GOP is already hemming and hawing over what’s in reality a very modest proposition, and will likely block the measure as they always do. And they do so for one reason only, and it’s not because their constituents think it’s a good idea: they do so to secure high standing (and the accompanying campaign contributions) from these corporations. Subsidies are notoriously hard to kill — the taxpayer barely notices the portion he pays to support the subsidized activity, but the sector that receives the subsidy will indeed be motivated to mobilize efforts to continue receiving it. And big oil is easily powerful enough to buy enough favors to preserve the status quo in Congress.

[Note here: Slashing oil subsidies is an incredibly popular idea — something like 75% of Americans want to see them gone. For that matter, all the other planks of Obama’s jobs plan are incredibly popular too — slightly increasing taxes on the wealthy, cutting payroll taxes to benefit the middle class, and putting people to work building and rebuilding the nation’s infrastructure all enjoy wide bipartisan support.]

The fact that the political establishment continues to act contrarily to the will of the people, favoring things like securing tax breaks for prospering corporations over the welfare of the panicked, broke public is further evidence of a powerful decline in America’s democratic institutions.

A version of this post first appeared at Treehugger.com

Photo: Feathered Tar via Flickr/CC BY

About Brian Merchant

Brian Merchant is a founding editor of the Utopianist.. When he's not helming the Utopianist, he is TreeHugger's politics writer, contributes the Getting Samy Out of Burma column to GOOD.is, and freelances for the likes of Salon and Paste. He lives in Brooklyn, New York.

14 thoughts on “Why Can’t We Kill Big Oil Subsidies?

  1. What follows is basic economics. Removing a subsidy from a product will certainly shift the supply curve to the left causing an increase in prices for that product and reducing the amount purchased.
    I suppose that oil demand is pretty inelastic (based on the presumption that few people can just stop driving to work and that we will likely not stop buying plastic goods or start shipping goods in alternately-fueled trucks, planes, and ships), so the biggest effect will be an increase in price with a relatively small decrease in consumption.
    What I mean is that if the price doubles (for example), consumption will likely not be cut in half. If there were in place realistic substitutes for oil, the decrease in consumption would likely be greater, as the demand for oil would be more elastic, but electric cars are new and expensive and bicycles are not good for 30-mile one-way commutes, and the public transportation in much of the US is severely lacking, so the substitutes are not there yet. Eventually, I think alternative forms of transport would enter the market as the demand for the substitutes increases and producers respond, but I have no idea how quickly that would happen, and it would be painful in the meantime, especially for the working poor for whom the increased prices of goods and the inability to afford a new hybrid could cause a real money crisis.
    I am not passing judgement on whether it should be done or whether the increased cost of petroleum products is worth it. Perhaps a 5% reduction in oil consumption is worth the increased price. I am just putting in two cents about the almost certain consequences.
    If someone knows more about economic theory (which is certainly anyone) please feel free to tear up my argument. I would love to see if I am correct or not.

  2. There is no long term benefit to the economy for the government to spend more on jobs. It can only “create” jobs working on infrastructure temporarily and at the expense of taxpayer dollars that could otherwise be spent on investing in businesses. Economic stimulus is no better achieved by the government than companies. I’m not talking about the oil subsidies, which are unconstitutional like all subsidies. When companies and individuals have more money, they spend more. Government stimulus doesn’t work any better, and it has the additional expense of collecting money and redistributing it. Eliminate the middle man and let the people spend their money.

    1. Actually creating jobs building infrastructure is exactly what got us out of the great depression. So it does work, as the people spend the money they make thus allowing others to create businesses.

      Additionally if we built good mass transit infrastructure we could stop socializing the oil industry, as that is what subsidies are socialism, and allow the free market to eliminate oil, as who would spend upwards of $20 a gallon to get around. The whole reason the U.S. can’t shake it’s dependency on oil is that we don’t realize how much that oil is costing us.

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