John Feehery: Speaking Engagements

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Big Bad Oil

Posted on May 13, 2011
Two things drive me completely crazy about the debate over higher gas prices.

First, this whole issue of big oil subsidies is complete crap. The oil industry gets the same tax breaks as any other manufacturer. And why shouldn’t they? They manufacture a product here in the U.S.

I am stealing the following four paragraphs from the American Thinker blog (if I say that I am stealing it publicly, then it isn’t plagiarism, right?) because I think the author does a nice job of summing up what these tax credits are:

“Domestic manufacturing tax deduction -- $1.7 B. This is a tax deduction given to every manufacturer in the US. Per CNN, it was "designed to keep factories in the United States." If that deduction were eliminated for oil companies only, it would mean singling out oil companies from all other manufacturers.

Percentage depletion allowance -- $1 B. Any industry can write down a portion of the cost of its capital equipment as part of the cost of doing business. Right now, oil in the ground is treated as capital equipment. Again, this "subsidy" amounts to how the cost of doing business is defined. All companies get it, not just oil companies.

Foreign tax credit -- $850 million. Companies get credit for taxes they pay to other countries. All companies get this "subsidy," not just oil companies. Should a company pay tax on tax? Should only oil companies pay tax on tax?

Intangible drilling costs -- $780 million. According to CNN, "[a]ll industries get to write off the costs of doing business, but they must take it over the life of an investment. The oil industry gets to take the drilling credit in the first year." Among these four tax "breaks," this smallest one was the only one that treated oil companies differently.”

The Democrats manufacture this argument every year because, well, they don’t like big business and they hate the oil industry. So, they trot out the executives every April or May because they think it is good politics for them.

The reason energy prices sky-rocket this time of year is simple: Government mandates require that the oil industry change from a winter blend to a summer blend and include a percentage of ethanol in that blend. They do that because worries over smog and they do that to increase ethanol consumption.

Of course, there are other reasons that gas prices are going up. The Chinese and the Indians are driving more, and using a lot more gasoline. That means supply is tighter, which means prices go up. The dollar is weak, and that means that it costs more dollars to buy the same amount of gasoline. Turmoil in the Middle East has speculators spooked, which means the spot price for oil goes up. And, the EPA and the Obama Administration cut off exploration in the Gulf for an extended period, meaning less oil on the market.

The increase in gas prices shouldn’t surprise anybody.

Which leads me to the second point that drives me crazy about this energy debate.

The myth that somehow we can become energy independent is just that, a myth.

And it is a dumb myth.

We can be energy independent tomorrow. But it will probably triple the cost of a gallon of gas, overnight.

American energy independence is not good for consumers. The whole concept is protectionist in nature and it will sharply increase prices for anybody who drives a car or truck (or boat, for that matter).

The global marketplace is good for consumers. And it is good for our own strategic purposes.

The world-wide oil market serves an important purpose. It keeps our energy prices fairly low. We pay a helluva lot less than Europe (for example) when it comes to a gallon of gas. That is because we are relatively light on our taxes on energy.

I know the arguments that somehow if we could wean ourselves off of foreign oil, we can just extricate ourselves from all the world’s problems.

Guess what? That’s complete crap. We are not going to abandon Israel to fend for itself. And our relationships with Saudi Arabia, built primarily on our trade relationship based on oil, is helpful to Israel’s security. There is no way the Saudis are going to attack Israel as long as we buy so much of our oil from them.

Indeed, perhaps the best way to gain leverage on the Iranians is to re-open our trade ties to them. I know we won’t do that, and I know some will say that by buying Iranian oil we will somehow be funding their terror network, but I disagree. By becoming a customer, we can become a moderating force there.

In any event, I would love to see more energy options that work in the marketplace. In the meantime, I am happy to buy my gasoline at a price point as determined by the marketplace, not by a bunch of politicians who seem to have forgotten all that they learned about free market capitalism in grade school.