Civil engineer and transportation expert David Levinson starts with the premise that the oil industry receives $20 billion in subsidies from the United States each year, and concludes that this subsidy has minimal impact on urban transit. When, a few years ago, gasoline prices were double what they are today, transit ridership was only about 0.1 percent greater than it is today. Assuming ridership would have kept up with population growth, a “100% increase the price of fuel gets you a 5% increase in ridership,” says Levinson.
But back up a minute. Who says the oil industry gets $20 billion in annual subsidies? As the anti-petroleum group, Oil Change International admits, most of that “subsidy” is a tax deduction for oil exploration. As Forbes points out, this is the kind of subsidy that is “also available to any U.S. manufacturer such as Apple or Microsoft.” As the pro-petroleum OilPrice.com says, “The suggestion that depletion or depreciation deductions on income from investments that might not otherwise exist amount to a subsidy is a remarkable interpretation of the rules of accounting and the English language.”
Some countries, such as Iran and Saudi Arabia, actually give their residents direct subsidies to use oil. The United States does so only to help low-income people buy fuel oil to heat their homes. Otherwise, the “subsidies” people complain about are really just tax deductions for ordinary business expenses.
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Of course, Oil Change International can find all sorts of other subsidies, such as “military protection of U.S. oil interests abroad” and “health and environmental costs from local pollution and climate change impacts.” But the Antiplanner is skeptical of those too. I seem to remember the United States military being involved in a war in the former Yugoslavia, and I don’t think there is much oil there. On the other hand, if we wanted oil from Iraq, it would have been a lot cheaper to simply buy it from Saddam Hussein, who was eager to sell to us, than to make war on Iraq, so our military presence in the Mideast must have to do with something other than oil.
In short, estimates of oil subsidies are highly exaggerated. But even if they are not, as David Levinson says, they don’t have much influence on people’s transportation choices.
Thank you for the post and the links. I always suspected that envirofascists’ claims of oil industry subsidies were in fact business expense deductions from gross income taken by every for-profit corporation. Clicking on the Oil Change International link above finds an amusing comment:
You could write books about how creative environmentalists and leftists are in twisting things around to demonize whoever they attack. I read some article advocating wind and solar power and they said the electrical grid balancing problems are the fault and expense of coal and nuclear plants not being able to start and stop fast enough and that wind and solar should be considered the “base energy” on a grid.
If you want to blow an environmentalists mind, explain to them how tax deductions, especially government bonds, are worth more to rich people by design. So all their public transportation projects financed with government bonds are subsidies to the rich.
Ha. Sure, if Apple and Microsoft are “drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water.” That subsidy for oil and gas is literally written into the US tax code.
The link drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water is dead.
Regardless, Intangible Drilling Costs deductions are little different from Section 179 Deductions that are available to all businesses. Both offer ways to accelerate capital expense offsets against gross income. And neither are “subsidies” in the sense of the real subsidies that taxpayers pay for windmills or solar:
Here you go. The section about “Exploration Costs” is also a pretty obvious subsidy.
They’re similar, but they’re not the same. Otherwise the words “oil, gas” or “drilling” wouldn’t even need to appear in the tax code. Furthermore, the drilling and exploration subsidies are much more generous than regular Section 179 deductions. If Apple builds a factory it can immediately deduct the costs of the building, computers, and software but it can’t deduct the wages of all the workers and other costs. If Apple had been drilling a well or doing a seismic survey for fossil fuel extraction it could deduct all the associated costs, down to the wages of the roughnecks and the cost of the fuel, right up front.
There’s nothing wrong with subsidies, per se, but as a society we probably want to be subsidizing good things and discouraging bad things. Fossil fuels are most decidedly bad, while wind energy is comparatively good. Fossil fuels extraction and burning are associated with huge negative externalities, not least of which is global warming. The fact that those huge social costs are not adequately priced into fossil fuels usage itself amounts to a de facto subsidy.
Subsidies to big oil pale in comparison to how much they pay the government. Oil companies pay taxes in every country they do business.
http://www.cnsnews.com/news/article/penny-starr/3-us-oil-companies-paid-highest-corporate-income-taxes-2897b-2007-12
And their revenues and profits people tend to confuse the two. Revenue is how much money you make…profit is how much you have leftover after payroll, taxes, R&D, resource acquisition, logistics, transportation costs, fees and licensing, essentially they spend a lot of their money looking for more petroleum and give a lot to the government. Oil companies don’t need subsidies to be profitable, they’re just rules created by Congressmen who have a skin in the financial game. Oil companies make 6.2 cents of profit for every dollar of revenue, manufacturing firms in general make an average 8.7 cents per dollar of revenue. yet they continue to hum along happily keeping modern civilization running. So shut up and be happy for them.
Apple certainly could not immediately deduct the cost of the building. Buildings have useful lives of more than one year and as such get depreciated over time rather than deducted as an immediate expense.
This is a philosophical argument rather than a logical argument. I hear this quite a bit among the environmentalists. It’s as if their thinking on things like oil and gas and wind and solar has morphed into a pseudo-religion; faith vs. facts. And unless you live in a cabin in the woods and generate your own power, grown your own food, make your own clothes, and walk wherever you want to go, you are using petroleum, coal, and natural gas pretty much every minute of your day. And that won’t change for a very long time.
I’m trying to parse your meaning, here. Either you’re saying you don’t subscribe to a Kantian theory of ethics or, more likely, you simply seek to contrast your argument with mine by draping it in the mantle of mathematical truth. But if you really don’t think yours is a philosophical argument then we’re done. I didn’t come here to discuss the semantics of “subsidy.”
And also hastening its eventual demise . . . But who cares as long as my 401k goes up in value today, amirite?
It’s true, but you’ve got the roles reversed. It takes a religious sort of blind faith to deny the overwhelming scientific evidence of anthropogenic global warming.
So?
Alternatively, we have a situation that this former president warned of:
I live near Boulder, which has hundreds if not thousands of people sucking off the Federal Government’s global warming tit, and their heads are getting close to exploding. If their precious grants go away, who’s going to pay the mortgage on their upscale foothills chalets? Who’s going to pay for their kids’ tony private schools? Teslas don’t pay or themselves, dammit.
As a taxpayer, I for one welcome the new administration’s efforts at fiscal sanity. Keep shoveling money at people for too long and they turn into robots, endlessly repeating the Party line.
As a taxpayer, I for one welcome the new administration’s efforts at fiscal sanity.
Link fixed.