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. Last Updated: 07/27/2016

Oil Industry Tax Breaks Really Take the Cake

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HR 9 and Three-Quarters

To give buckets of American tax money to the international oil companies, because we can, and because they asked nicely, and because after we retire from the U.S. Congress we hope to be invited to sit on corporate boards.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


This Act may be cited as the "Gimme $142 Million Over Five Years Act of 2002."


Congress finds the following:

(1) Oil companies are sitting on enormous piles of cash. Profits for ExxonMobil alone were $15.3 billion in 2001. Last year, the industry was sitting on $40 billion; as a July 2001 headline in the Wall Street Journal put it, "Major Oil Companies Struggle to Spend Huge Hoards of Cash." That article observed that in May 2001, the Royal Dutch/Shell Group said it was making about $1.5 million in profit every hour -- while already sitting on more than $11 billion in the bank. "It's a big problem," the Journal reported.

(2) Oil companies pay almost no U.S. taxes. Texaco, for example, reported $3.4 billion in U.S. profits over the three years from 1996 to 1998 -- and took $304 million in tax rebates for that period. As the U.S. assistant treasury secretary for tax policy testified in 1999 before Congress: "To give you some idea of the magnitude of tax preferences for this [oil] industry, Mr. Chairman, for the year 1996 ... 75 percent of corporate firms engaged in oil and gas production paid no federal corporate income tax at all."

(3) Oil is a fossil fuel, and therefore both dirty and likely to run out someday. There is not one single responsible person Congress knows of who argues we can continue to burn oil at the rate we do today far into the future.

(4) Money is short for many worthy needs, as always.

(5) Nevertheless, it shall be the sense of the Congress to give oil companies big fat helpings of your money. We propose, oh, say, $149 million over the next five years -- with the understanding that this is just an hors d'oeuvre, and that legislation to follow will continue a long-running and gluttonous binge by the oil and gas industry worthy of Caligula. No one will notice, because the legislation won't say "A Bill to Steal $149 Million Over the Next Five Years From the American People." Instead, the bills will offer no dollar figure and no explanation, just a bunch of (lobbyist-written?) gibberish.

For an illustrative example, turn to page 432 of the 532-page "Securing America's Future Energy Act of 2001" -- the House Republican bill HR 4, which was endorsed by President George W. Bush in his State of the Union address, and is the starting point for Republican haggling in the Democratic Senate. There you'll find:

SEC. 3309. ALLOWANCE OF ENHANCED RECOVERY CREDIT AGAINST THE ALTERNATIVE MINIMUM TAX. (a) IN GENERAL. Subparagraph (B) of section 38(c)(3), as amended by section 3307, is amended by adding at the end the following new sentence: "For taxable years beginning before Jan. 1, 2005, such term includes the credit determined under section 43.'' (b) EFFECTIVE DATE. The amendment made by this section shall apply to taxable years beginning after Dec. 31, 2001.

A chosen few can get that passage translated by either the Joint Committee on Taxation or the Office of Management and Budget -- two U.S. government bodies that model the cost of changes to the tax code. Luckily for the rest of us, the JTC and OMB data have been culled and summarized by Green Scissors.

Green Scissors is an umbrella group uniting environmentalists, consumer advocates and taxpayer watchdogs in battle against irrational and environmentally damaging spending. Their annual report for 2002 was released April 11 at Check out the 1872 Mining Law. Under this antique statute, mining companies in 2000 extracted almost $1 billion from public lands without paying a single penny in royalties for the privilege. (Even the oil companies have to pay royalties when the oil in question is on someone else's land.) It also allows mining companies to buy mineral-rich U.S. public lands at 1872 prices; billions of dollars get snapped up for $5 an acre.

But back to SEC. 3309 of Bush's favored energy bill: Oil companies get a 15 percent income tax credit under American law for recovering domestic oil when they use certain "enhanced recovery" methods -- like using heat to make congealed oil runnier and easier to suck out of the ground. (Why? Once upon a time, they asked for the credit.) Under the "enhanced recovery credit," oil companies will write off an estimated $2.8 billion over the next 10 years. This is one of the ways oil companies pay zero tax amid enormous profits.

If an oil company pays any tax at all, that's often thanks to the Alternative Minimum Tax -- adopted in 1986 to make sure every U.S.-based corporation with substantial profits antes up at least something. Naturally, the AMT bugs the bejeebers out of Republicans and corporations. You may remember the Republican-pushed "Economic Stimulus Package" would have given $250 million to Enron. That's because it was going to gut the AMT. (That would have also given ChevronTexaco $572 million, IBM $1.424 billion, Ford $1 billion, etc.)

Which brings us to SEC 3309. Translation: Oil companies can't take all of their "enhanced recovery credits" under the AMT, and they are sulking. SEC 3309 would change that rule -- for four years only (!), from 2002 to 2005. Green Scissors reports this would cost taxpayers an estimated $149 million.

I selected this particular tax break pretty much at random. Believe it or not, it's one of the smallest in HR 4. Under existing laws, Green Scissors says oil and gas companies will take more than $26 billion in subsidies and tax write-offs over the next decade. Bush's bill would nearly double that -- giving $21.2 billion more in tax breaks over that period to oil and gas:

HR 4: "Sec. 3202. Natural gas distribution lines treated as 10-year property." Green Scissors translates: $3.5 billion giveaway.

HR 4: "Sec. 3302. Temporary suspension of limitation based on 65 percent of taxable income and extension of suspension of taxable income limit with respect to marginal production." Translation: $1.11 billion.

Et cetera, et cetera. And that's not even looking at the $5.8 billion Christmas list for coal, or the $2.7 billion for nuclear power. Or at the comparatively paltry sums offered for clean energies.

I used to think corruption on this scale was a uniquely Russian problem. After a year poking around in Washington, I'm starting to have my doubts. But take heart -- the authorities aren't always so inattentive. April 15 was the last day to file U.S. tax declarations, and I found myself in a long line at the post office. (How I miss the foreign-earned income exclusion.) Last year, after I overpaid by 12 whole cents and filed several weeks late, the full force of government came crashing down, in the form of my 1040 form returned to me with a demand for $5 in fines. So, let's roll!

Matt Bivens, a former editor of The Moscow Times, is a Washington-based fellow of The Nation Institute []. He contributed this essay to The Moscow Times.