Subsidies For The Oil Companies – The Big Pass Through

As CES’ continues to dissect the State Journal Register’s “guest” OP-ED piece by Dave Sykuta bear in mind that he is just one of at least 50 industry flacks that have probably published the SAME piece in one of their state’s newspapers probably in or near a state Capital near you. These guys coordinate their efforts and if you don’t think there is a global oil conspiracy…THINK again.

** Taxes are the second biggest factor in gasoline prices.  The federal gas tax is 18.4 cents and Illinois adds 19 cents.  Unfortunately, Illinois is one of only nine states that charge a sales tax on gasoline and the only one I know that allows additional local gas and sales taxes.These extra taxes are a massive self-inflicted price increase of almost 24 cents per gallon in Springfield and even more in Chicago, where an  85-cent total gas tax is the highest in the United States. And remember, gas prices include the tax! Consumers’ gas price perception would be different if the sign that says “$3.35 a gallon” said “$262.5 plus tax” as every other consumer item is priced.  According to AAA, the difference between Illinois, with the fifth-highest price, and Missouri, with the fourth-lowest price, is all taxes! Illinois politicians don’t like to talk about taxes. I wonder why.


Well guess who else doesn’t like to talk about taxes:

Oil Company Subisdies: $7 billion + 2.6 billion + …
Vague Law and Hard Lobbying Add Up to Billions for Big Oil

By Edmund L. Andrews, NY Times, March 27, 2006

But last month, the Bush administration confirmed that it expected the government to waive about $7 billion in royalties over the next five years, even though the industry incentive was expressly conceived of for times when energy prices were low. And that number could quadruple to more than $28 billion if a lawsuit filed last week challenging one of the program’s remaining restrictions proves successful.

”The big lie about this whole program is that it doesn’t cost anything,” said Representative Edward J. Markey, a Massachusetts Democrat who tried to block its expansion last July. ”Taxpayers are being asked to provide huge subsidies to oil companies to produce oil — it’s like subsidizing a fish to swim.”

But on Aug. 8, Mr. Bush signed a sweeping energy bill that contained $2.6 billion in new tax breaks for oil and gas drillers and a modest expansion of the 10-year-old ”royalty relief” program.

  Oil-Company Profits The price-at-the pump is the sum of all the input costs plus, perhaps, some additional markup because of market power. We can tell if there’s market power by checking the price increases.Because there are 42 gallons / barrel, when the price of oil goes up by $10, say from $55 to $65, the price of gas should go up by $10/42 = 24¢ (popNote). It’s actually gone up faster than this, so we know oil companies are exercising some market power and passing through a “markup,” not just their actual costs.


And if you don’t think that BIG Evil Oil doesn’t coordinate their efforts everyday, then go to this website and see for yourself:

Does that sound like the editorial Sykuta “wrote” or should we say plagerized?

 Here are some of the programs you pay for:

Greenpeace believes Europeans spend about $10 billion or so (USD equivalent) annually to subsidize fossil fuels. By contrast, it thinks the American oil and gas industry might receive anywhere between $15 billion and $35 billion a year in subsidies from taxpayers.

Why such a large margin of error? The exact number is slippery and hard to quantify, given the myriad of programs that can be broadly characterized as subsidies when it comes to fossil fuels. For instance, the U.S. government has generally propped the industry up with:

  • Construction bonds at low interest rates or tax-free
  • Research-and-development programs at low or no cost
  • Assuming the legal risks of exploration and development in a company’s stead
  • Below-cost loans with lenient repayment conditions
  • Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire
  • Sales tax breaks – taxes on petroleum products are lower than average sales tax rates for other goods
  • Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)
  • The U.S. Strategic Petroleum Reserve
  • Construction and protection of the nation’s highway system
  • Allowing the industry to pollute – what would oil cost if the industry had to pay to protect its shipments, and clean up its spills? If the environmental impact of burning petroleum were considered a cost? Or if it were held responsible for the particulate matter in people’s lungs, in liability similar to that being asserted in the tobacco industry?
  • Relaxing the amount of royalties to be paid (more below)

It’s easy to get bent out of shape that the petroleum industry “probably has larger tax incentives relative to its size than any other industry in the country”, according to Donald Lubick, the U.S. Department of Treasury’s former Assistant Secretary for Tax Policy.


So remember, when the Politico’s says that your tax money is going to bridges and roads, think again! It’s really going to the Oil and Gas Companies.


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