Fossil fuel subsidies staying in place for 111th year

WASHINGTON — As a candidate in 2020, Joe Biden campaigned to end billions of dollars in annual 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 this week was his fourth attempt to eliminate what he called “wasteful subsidies” to an industry that is enjoying record profits.

“Unlike previous administrations, I don’t think the federal 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 that would otherwise be provided to the industry over the next decade.

Biden’s wish is opposed by the oil industry, Republicans in Congress and a handful of Democrats. In Washington, it seems, oil and gas subsidies are the zombies of the tax code: impossible to kill.

“Everybody agrees fossil fuel subsidies are wasteful, stupid and moving things in the wrong direction,” said Michael Ross, a political science professor at UCLA who studies fossil fuel tax breaks. “Getting rid of them seems to be one of the hardest things to achieve on the climate agenda.”

The oil and gas industry enjoys nearly a dozen tax breaks, including incentives for domestic production and writeoffs tied to foreign production. Total estimates vary widely; 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 was aimed at encouraging the development of U.S. resources. The deduction allows companies to write off as much as 80% of the costs of drilling, things such as employee wages and survey work, in the first year of operation, even before producing a drop of oil.

Another subsidy, dating from 1926 and known as the depletion allowance, initially let oil companies deduct their taxable income by 27.5%, a number that seemed strangely specific.

“We could have taken a 5 or 10% figure, but we grabbed 27.5% because we were not only hogs but the odd figure made it appear as though it was scientifically arrived at,” Sen. Tom Connally, D-Texas, who sponsored the break and who died in 1963, was quoted as having said in Sam Johnson’s Boy, a Close-Up of the President From Texas, a biography of

Lyndon B. Johnson.

That tax break proved so lucrative that it prompted celebrities such as Jimmy Stewart, Frank Sinatra and Bing Crosby to become oilmen on the side, buying interests in oil wells and using the deduction to shelter their Hollywood income.

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.

Early on, lawmakers justified the deductions by saying they would help attract investors to a risky venture. Now, oil companies are extremely profitable.