Taxpayers have subsidized fossil fuels for 111 years
WASHINGTON — As a 2020 candidate, Joe Biden vowed to end billions of dollars in tax breaks to oil and gas companies within his first year in office.
It’s a pledge he has been unable to keep as president.
Biden’s budget request to Congress last week was his fourth attempt to eliminate what he called “wasteful subsidies” to an industry enjoying record profits.
“Unlike previous administrations, I don’t think the ... government should give handouts to big oil,” Biden said after his inauguration. His new budget proposal calls for the elimination of $35 billion in tax breaks to be provided to the industry over the next decade.
Biden’s wish is opposed by the oil industry, Republicans and a handful of Democrats. In Washington, it seems, oil and gas subsidies are the zombies of the tax code: impossible to kill.
The oil and gas industry enjoys nearly a dozen tax breaks, including incentives for domestic production and write-offs tied to foreign production. Total estimates vary; environmental groups take a broad view of what constitutes a subsidy while the industry hews to a more narrow definition. The Fossil Fuel Subsidy Tracker, run by the Organization for Economic Cooperation and Development, calculated the total to be about $14 billion in 2022.
Two of the biggest tax breaks have been in place for about a century.
The oldest, known as “intangible drilling costs,” was created by the Revenue Act of 1913 and aimed at encouraging the development of U.S. resources. The deduction allows companies to write off as much as 80% of drilling costs, employee wages and survey work, in the first year of operation.
Another subsidy, dating to 1926 and known as the depletion allowance, let oil companies deduct their taxable income by 27.5%.
The allowance was eliminated in 1975 for large producers and reduced for smaller companies, which are still allowed to deduct 15% of their revenue from their taxable income.
Lawmakers justified the deductions by saying they would help attract investors to oil drilling, which could be a risky venture.
Today, Exxon Mobil and Chevron, the largest U.S. energy companies, are enormously profitable. Last year, American companies pumped 13 million barrels each day on average, a figure that had made the United States the largest crude oil producer in the world. The country is also the world’s leading exporter of liquefied natural gas.
The oil and industry is expected to reap $1.7 billion in 2025 from the intangible drilling tax break, and $9.7 billion over the next 10 years, according to the White House. It is expected to realize $880 million in benefits from the depletion allowance tax break in 2025, and $15.6 billion by 2034.
Instead of investing in their businesses, the oil and gas companies have poured profits into “stock buybacks, mergers, and acquisitions that benefited executives and wealthy shareholders,” the Biden administration said on a fact sheet accompanying the budget proposal.
Ending subsidies for oil and gas is not a new idea, but it has never gotten far.
President Barack Obama tried in almost every budget to scrap the tax breaks but failed, even when Democrats controlled both the House and Senate from 2009 to 2011.
Anne Bradbury, CEO of the American Exploration & Production Council, called Biden’s call to change the tax code “a direct attack on American energy production” that would harm an industry that supports more than 9 million jobs.
“This budget should not even receive a vote in the House or Senate, and lawmakers in both chambers should craft budgetary policy that does not impede American energy production,” Bradbury said in a statement.