In a truly ridiculous move, President Obama yesterday sent a letter to Capitol Hill urging Congress to eliminate “unwarranted” tax breaks for the oil and gas industry. This comes on the heels of his earlier move to sic his Attorney General Eric Holder on the usual suspects, “oil speculators,” always the favored bugabear when gas prices rise. It is a recurring theme.
The administration is relentlessly shutting down the spigots, delaying and deferring the industry’s ability to drill and explore, slow walking the permit process, etc.; supplies are stagnant while demand continues to rise, here in the U.S., and especially abroad in the BRIC juggernauts (Brazil, Russia, India, and China).
This latest move to go after the tax breaks is particularly lame in view of the fact that this administration, its congressional allies, and even some on the right, are avidly preserving, even expanding, the idiotic corn ethanol program, which costs the taxpayers and consumers billions each year, damages the environment, and props up an industry that would not even exist except for the heavy hand of federal regulatory intervention. In 2010, more than one third of the U.S.’s record corn harvest of 335 million metric tons will be used to produce corn ethanol; by 2015, 50 percent of the U.S. corn crop will wind up as biofuels.
CNBC’s venerable Larry Kudlow notices the incongruities as well:
Of course, if you really wanted to stop expensive subsidies, you’d kill the ethanol subsidies that have a big carbon footprint and drive corn and wheat prices sky high. But the liberal-left progressives hate oil and gas companies, period. That’s really what all this is about.
Ironically, besides the usual plea for wind, solar, and biofuels — which amount to virtually nothing in terms of our energy use — the president does include natural gas. But natural gas is produced by oil and gas companies. And you have to drill for it. Therefore, oil expenses in the whole drilling process — including leases, permits, geology research, and dry holes, and then drilling, producing, lifting, and ultimately refining for sale — should be 100 percent expensed.
So it would be great if the president understood that you have to drill for natural gas. It also would be great if the president and his pals, instead of harping on a measly $4 billion a year in so-called subsidies (compare that with a $1.5 trillion deficit), focused on real pro-growth corporate-tax reform that drops the rates and includes permanent 100 percent expensing.
According to Brian Johnson of the American Petroleum Institute, earnings for the oil and gas industry:
…are in line with those of other major U.S. manufacturing industries, as measured against their sales. The latest available data for 2010 earnings shows the oil and natural gas industry earned 5.7 cents for every dollar of sales. This is below the earnings of all U.S. manufacturing, which earned an average of 8.5 cents for every dollar of sales. Many would not expect an industry as large as the U.S. oil and natural gas industry, which supports 9.2 million U.S. jobs and contributes to 7.5 percent of gross domestic product (GDP), to have lower earnings per dollar of sales than the average manufacturing industry, but that’s the reality.
Further, U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. According to data found in the Standard & Poor’s Compustat North American Database, the industry’s 2009 net income tax expenses — essentially their effective marginal income tax rate — averaged 41 percent, compared to 26 percent for the S&P Industrial companies. The Energy Information Administration (EIA) concludes that, as an additional part of their tax obligation, the major energy-producing companies paid or incurred over $280 billion of income tax expenses between 2006 and 2008.
The U.S. oil and natural gas industry also pays the federal government significant rents, royalties and lease payments for production access — totaling more than $100 billion since 2000. In fact, U.S. oil and natural gas companies pay more than $86 million to the federal government in both income taxes and production fees every single day. In addition, since 2000, the industry has invested almost $1.7 trillion in U.S. capital projects to advance all forms of energy, including alternatives, while reducing the industry’s environmental footprint.
And, still the corn ethanol boondoggle is left untouched; this, in spite of the fact that everyone (except maybe the beneficiaires of that boondoggle and the politicians who love them), including former VP and environmental gadabout Al Gore has concluded that the program is terribly misguided. Recently, Nestle’s Chairman, in a speech to the Council on Foreign Relations in NYC, lambasted the U.S. corn ethanol program, stating:
“Today, 35 per cent of US corn goes into biofuel,” the Nestlé chairman told an audience at the Council on Foreign Relations (CFR) in New York yesterday. “From an environmental point of view this is a nonsense, but more so when we are running out of food in the rest of the world. “It is absolutely immoral to push hundreds of millions of people into hunger and into extreme poverty because of such a policy, so I think – I insist – no food for fuel.”
So why does it continue to exist and, in fact, expand?
According to energy expert Robert Bryce:
The answer can be boiled down to a few salient realities of American politics and agricultural policy. First, even in the subsidy-rich world of U.S. agriculture, corn is king. Second, the power wielded by the farm state lobby remains enormous. Third, Iowa is Ground Zero for corn, and its pivotal presidential caucuses leave even supposed change agents like Barack Obama bowing before the altar of corn ethanol…
Cutting the ethanol mandates will require jousting with two of the most powerful members of the Senate, Republican Charles Grassley and Democrat Tom Harkin. Both are Iowans. Both are ardent ethanol boosters. And Harkin is the chairman of the Senate Agriculture Committee. Harkin’s position gives him tremendous leverage over any ethanol-related legislation that comes before the Senate.
And, on a related note, while our politicians are deliberately vilifying our energy producers, deliberately trying to drive our energy costs up, and refusing to allow these industries to develop more domestic sources of energy, the Chinese are moving ahead with their own shale gas drilling program and the IMF just issued a report that predicts that China will overtake the U.S. to become the world’s most productive economy by 2016.
Oh, yeah, and they are the largest foreign owners of our $14.3 trillion national debt…just sayin’.