The Blue Dog Research Forum's “Point and Counterpoint” Edition asked the question: Should We End Tax Benefits to the Oil and Gas Industry?

Taxpayers for Common Sense President Ryan Alexander provided her perspective on why we should.  Other perspectives provided by:

• Rep. John Dingell (D-MI), House Energy and Commerce Committee
• Charles N. Macfarlane, General Tax Counsel, Chevron Corporation
• Nicolas Loris, Policy Analyst, The Heritage Foundation

Below is the full text of Ms. Alexander's remarks.  For additional perspectives on this issue, please click here .

POINT: TCS RYAN ALEXANDER

Taxpayers for Common Sense

There are a couple of basic truths about oil and gas companies today – they are highly profitable, heavily subsidized, and well connected in Washington. While this scenario makes for a very lucrative business model, it costs taxpayers billions of dollars for very little return. With a yawning chasm of debt and trillion-dollar deficits staring us in the face, these outdated and unnecessary giveaways must end.

Oil and gas companies spend a lot of money to keep these cherished subsidies, nearly $140 million in campaign contributions over the last ten years and $321 million in lobbying expenses – $440,000 a day – in 2009-10. But they don’t stop there. The oil and gas industry also trots out a series of canards and misinformation to bolster their subsidy supplications.

One of them is that they have a high effective tax rate – higher than the 35% corporate rate. But as they say: figures lie and liars figure. Note they don’t say this is their federal tax rate or that this even reflects what they actually pay in taxes. That’s because the figure includes local, state, federal and even international taxes. That’s right—they are bragging to American taxpayers about a high effective tax rate inflated by what they are paying foreign governments. But even then the figure is intentionally misleading. It is based on an accounting term of art—“income tax expense”—that doesn’t capture deferred tax payments or credits. It is unclear what the true effective federal income tax rate is, but it is substantially lower than what the industry wants us to believe. And for some companies in some years, it is effectively zero.

They also brag about how much revenue they contribute to the federal government every day. Again, they are being clever in their terminology. Revenue includes royalties, rents and other fees. These are payments for goods and services. It would be like saying I “contribute” to the gas station owner when I fill up my car. No, the oil and gas companies are paying taxpayers for resources that they are removing from federal land.

Finally they trot out the claim that many of the tax breaks they get are the same as what goes to other companies. In some cases this is true. The Section 199 manufacturing tax deduction benefits all domestic manufacturing activities. But there aren’t other industries that tap the Intangible Drilling Costs credit (created in 1918) or the Expensing of Tertiary Injectants or get the tax credit for blending ethanol into fuel. By our estimation, there are more than $11 billion in oil and gas-specific tax breaks, in addition to the other general business provisions in the code they tap into to the tune of $5.5 billion per year.

The simple fact is we have been subsidizing this industry for a century. With the amazing profits they churn out regardless of the state of the overall economy, they don’t need the various breaks and deductions that have been added to the tax code over the years. But considering we have $14 trillion in debt and are suffering from a $1.65 trillion deficit this year, we could use the cash.

Yes, we need an overall strategy to eliminate many of the tax expenditures that litter the code, add to complexity, and receive virtually no oversight. That way we can expand the base and reduce the corporate rate. But considering the fiscal crisis we can’t pursue an all or nothing strategy. We should eliminate the tax expenditures. We should get rid of all the energy subsidies across the board. But we might as well start with oil and gas. That’s where we are right now.

By Ryan Alexander, President, Taxpayers for Common Sense

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