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An Awful New Industry Talking Point

by Michael Levi
February 1, 2011

The New York Times reports this morning on the perennial battle over energy subsidies. In addition to a lovely quote from this blog, the Times has this from American Petroleum Institute (API) president Jack Gerard:

“The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day.”

Are you kidding me?

Gerard is referring to royalties and taxes.

Royalties are payments to the public for the fact that Mr. Gerard’s member companies are drilling for and selling oil and gas that ultimately belongs to the American people. In many parts of the world they pay considerably more for the privilege. (Sarah Palin’s Alaska was famous for taking a bigger cut than other U.S. states.) This is not a “subsidy” to anyone – it’s payment for the use of someone else’s resources.

Meanwhile, API members pay taxes just like every other company. (Well, not just like every other company – they get a host of tax breaks that other companies don’t.) But like other companies, they need the government. How would the oil and gas industry of America be doing without police that keep their property safe? Without publicly funded education for scientists and engineers? Without a U.S. military that keeps the world safe for trade in oil? Would the oil and gas industry be better off if it stopped “subsidizing” the U.S. government, and the U.S. government stopped providing its services?

What’s frustrating is that there’s a legitimate debate to be had over the wisdom of removing all the tax benefits that the industry gets. Domestic drilling is no panacea, but everything else being equal, it does tend to benefit the U.S. economy in ways that aren’t captured simply in its bottom line. So long as API insists on making ridiculous claims like the one in the Times article, though, I doubt we’re going to be able to have a sensible discussion.

So please, industry friends, never say you’re subsidizing the U.S. government again. If you need a snappy new talking point, just tell us that you’re doing God’s work.

Post a Comment 3 Comments

  • Posted by Michael

    It is possible to imagine another system by which the American people are compensated for their shared resources without the federal government seeing a dime of the royalties. Police, fire and education could be adequately provided by states and municipalities as they always have been. Imagine, for instance, 95 million dollars per day being funneled into health and education trust funds for every child born in this country. Fair compensation and Uncle Sam need not take his cut of the people’s resources.

  • Posted by John Felmy

    Michael – While we agree that there is a legitimate debate to be had over the wisdom of raising taxes on the energy industry it is incorrect to suggest that we are the barrier to sensible discussion. You don’t have to look hard to find ridiculous claims made against the industry and characterizations of its business tax deductions as subsidies, loopholes, handouts, giveaways, etc. Our record speaks for itself: the oil and natural gas industry paid income taxes at an effective tax rate of 48.4 percent–well above the 28.1 percent paid by S&P Industrial companies.

    Gerard was clearly not implying that the industry should pay no taxes or denigrating the federal government. He was merely pointing out, in the frame created by others, that the industry already is contributing greatly to the federal fisc. We recognize that the government needs money to operate, and have suggestions on front:
    http://scr.bi/fCTZQn

    For more on the economics of energy and taxes please see this primer: http://bit.ly/fk5PN9

    And the briefing papers located here:
    http://scr.bi/gS91T4

    Thank you,
    John Felmy, API Chief Economist

    [ML: Thanks, John, for the comment. What I'd like to see is a debate over the impact that various tax incentives actually have on domestic production. There's been remarkably little careful analysis along those lines published.]

  • Posted by David B. Benson

    Deincentivize fossil fuels.

    Also add a FCOAD fee.

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