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stephen matlock • 4 years ago

This is a subsidy that deserves to be killed.

dGratt • 4 years ago

Except that depreciation and tax deductions are not subsidies...

Ygorbla • 4 years ago

They're functionally identical, though. Unless you're talking about subsidies that exceed what they're paying someone in taxes, there's absolutely no difference between writing them a big subsidy check or giving them a big deduction -- either way, other people have to pay more to make up the difference.

Colsa2 • 4 years ago

They are functionally not identical because they are completely different. Depreciation gives companies an incentive to pursue capital investment which creates good blue collar jobs for oil workers.

A subsidy would go to the companies general balance sheet where it can be diverted towards dividends, executive salaries, etc...

cgallaway2000 • 4 years ago

the quest for profits is also an incentive to pursue capital investment...especially in a world where the technology improves very rapidly, and when a company makes enough money to pay for the costs of their equipment by themselves.

Colsa2 • 4 years ago

So what? If nobody was in on the quest for profit, if oil companies were not investing in capital investment in the pursuit of the quest for profit, then we would't have any domestic oil supply and ordinary Americans would be paying 7 dollars a gallon for gas.

These profits are still taxes when they are distributed to shareholders.

neroden • 3 years ago

You really don't understand what's going on here. Like I say, learn how percentage depletion actually works.

The "domestic manufacturing deduction" is equally bad: it's just a subsidy for doing, um, anything in the US. Now, pulling oil out of wells in the US can't really be done outside the US, so this is just free cash to oil drillers. It goes to executive salaries, dividends, etc.

Colsa2 • 3 years ago

The reason we have that is because the US already has some if the highest corporate taxes in the world. You would need to cut tax rates if you got rid of the deduction

neroden • 3 years ago

This isn't real depreciation. Look up how percentage depletion works. This subsidy goes directly to the company's general balance sheet, where it is diverted towards dividends, executive salaries, etc...

clif kuplen • 4 years ago

for big petro they are.

ThomasVeil • 4 years ago

Why not? Of course they are.

Colsa2 • 4 years ago

A subsidy is paid out by the government. These are not subsidies.

Guest • 4 years ago
Colsa2 • 4 years ago

Using all caps isn't helping your argument. The ability to deduct depreciation encourages capital investment in a predictable way that gives businesses a benefit only inasmuch as they are investing in hard assets like new machines or drilling rigs which actually contributes to well paying blue collar jobs (since someone has to work on or build the rig they buy). A subsidy is a direct payment which depending on how its structured may or may not be encouraging behavior that might have happened anyway and may or may not be simply diverted to oil executives instead of oil workers.

Besides all of this is a question of fairness. If my business buys a structure that subsequently loses value (due to aging or becoming obsolete) it makes sense to allow me to depreciate its value since I am actually losing value as time goes on and its resale value plummets due to wear and tear.

In the background of all this is the fact that US corporations already pay the highest corporate tax rate in the OECD and we need deductions like this to lower our effective tax rate so our companies can compete with the rest of the world in the first place.

If you want to use populist rhetoric to soak the Oil and Gas industry then talk about a carbon tax. At least that actually addresses the problem you want to address. Besides that don't make US oil companies play be different depreciation rules than other US heavy industry companies like manufacturers that need to depreciate loses. The US tax code is already complex enough.

Guest • 4 years ago

Except many corporations are now paying little to nothing in taxes through various loopholes. Many have paid next to nothing in taxes while receiving substantially larger tax rebates back, while simultaneously complaining that their taxes are too high. This at a time when taxes are, in fact, at historic lows. This at a time when corporate and CEO profits are hitting record-breaking highs, with executive salaries increasing by percentage hand over foot year after year, while labor wages have stagnated (and actually lessened over the years, when accounting for inflation).

Nobody is buying the 'boo-hoo, poor corporations!' conservative rhetoric, any more.

michael mcmenus • 4 years ago

Corporations never pay taxes they just collect them.

Colsa2 • 4 years ago

Almost all of the corporations that are able to reduce their tax liability to zero or close to zero are tech companies like Google that use aggressive transfer pricing schemes to divert their earnings to jurisdictions with low tax rates. This has nothing to do with Oil and Gas companies that have to pay taxes in the country where the oil is drilled and cannot take advantage of these loopholes.

Depreciating capital assets is not a loophole.

Donna Longino • 4 years ago

My car is a capital asset in conducting the business of my life. Yet, I don't get to write off its depreciating value.

Tom Moran • 3 years ago

The business of your life already gets the standard deduction.

Donna Longino • 3 years ago

Right, Tom. My standard deduction means my tax rate exceeds 35% while the effective corporate tax rate is around 12%. The tax code favors Big Business...the examples are endless. My favorite is health insurance. Companies get a tax write off but us self-employed folks just pay...and pay...and pay. Why? We have the tax code Big Business -- and the wealthy executives running them -- paid for.

Donna Longino • 2 years ago

And businesses get the standard deduction of writing off all heath insurance costs. I don't .

Tom Moran • 2 years ago

Pay for it with pretax dollars like an HSA or Section 125 plan

Donna Longino • 2 years ago

While larger employers provide these options, not all employers do. Since most working Americans get their health insurance via their employers -- many do not have access to these programs. Further, an HSA only covers medical expenses -- not the health insurance premium itself. Individuals get to deduct medical expenses from their taxes only when those expenses exceed 7 percent of their income. Thus, the leading cause of individual bankruptcy in the USA is medical expenses. Corporations get to deduct insurance premiums with no limitations.

neroden • 3 years ago

None of these subsidies consist of actual depreciation.

Percentage depletion is a plain giveaway, as I explained earlier.

Colsa2 • 3 years ago

Percentage depletion is a giveaway but severance taxes are a takeaway. Oil companies are subject to extraction taxes that nobody else pays also

Jackson Koeppel • 4 years ago

Maybe it makes sense to depreciate value of aging infrastructure, but not if it disproportionately affects select industries. Does a cabbie who saved up to purchase his vehicle get to depreciate the value of his cab? Probably not, because he doesn't have a legal team advocating for him in Washington. Whether the rationale is actually rational or not, and I'm not judging that one way or the other, you're still offering tremendous advantage to the oil & gas industry. So, whether you define it as a subsidy or not, these incentives create a market tipped in the favor of an industry that is a) causing massive health problems and ecological instability and b) based on a resource that is rapidly becoming incredibly scarce, making it increasingly reliant on support from the federal government. Hardly fair, and hardly different from a subsidy if the practical results (huge CEO salaries, for example) are the same.

We're effectively investing our tax dollars in a dying industry that is killing us. Whether its defensible by some rationale of a particular school of economics, a highly contested SOCIAL science (as it is primarily a study of human behavior), what is the purpose of trying to keep the sinking ship of the fossil fuel industry afloat, particularly when it makes it nigh-impossible for industries based on things that won't run out (like sunlight and wind) to compete?

As long as we continue offering disproportionate financial support of one kind or another to the Oil & Gas industry, we stymie innovation in other fields by encouraging, on a societal scale, continued excessive use of these resources which, again, we're running out of. Eventually, we're going to have to get off the metaphorically (and almost literally) sinking ship of the fossil fuel industry. It's going down, we know its going down, and to expend resources keeping it afloat with materials that could be building the next ship (education, alternative energy, cooperative economics) just seems short-sighted.

A carbon tax is a band-aid on a bullet-wound, and one that is expensive and impossible to regulate with any degree of accuracy (as the history of environmental protections will show). Before we create new taxes, let's get rid of the rules that allow polluting industries to operate so cheaply and let them compete, fairly, with other sources of power and fuel. Not to be crude, but solar will kick the shit out of any fossil fuel energy source. It's already approaching parity in a ludicrously imbalanced marketplace. How rapidly would investment and innovation progress if the playing field were level?

Colsa2 • 4 years ago

These incentives affect every industry equally. The are not tilted toward the oil and and gas lobby. In fact the oil and gas lobby is hit even harder than most industries because they have to pay additional severance taxes in addition to corporate taxes.

Solar Energy is an unreliable source that doesn't work at night at is only feasible in certain parts of the country with high sun output. Solar companies are going out of business left and right because prices have been falling so much. Solar sucks, in other words.

Oil is currently the only energy source that is remotely feasible for powering transport in the near future and gas is an extremely healthy energy source that is currently displacing loads of unhealthy coal much to everyone's benefit.

I don't know, maybe you can start teaching cabbies an accounting class. That's not my problem.

Guest • 4 years ago
Colsa2 • 4 years ago

The problem with solar is not capacitance. Even with ideal efficiencies you'd still need to cover like an area the size of western Alaska to have enough wattage to accommodate expected demand growth.

neroden • 3 years ago

Wrong again -- about 100 sq. miles of solar panels in Arizona will cover North American electrical demand. There've been several studies of this.

Colsa2 • 3 years ago

There are 1000 watts of solar radiation in a square meter and the sun shines for 8 hours a day while PV efficiency is 15%.

100 square miles (259 million square meters) could therefore produce 113 billion kilowatt hours of electricity every year assuming perfect operating conditions. The US alone consumed 4,100 billion kilowatt hours of electricity in 2012.

Nice try

Donna Longino • 3 years ago

Go to Germany and Austria. Solar power is pervasive.

neroden • 3 years ago

Again, you are wrong. Percentage depletion exists ONLY for the oil and gas industry. I'm not sure why you feel compelled to spread inaccuracies.

cgallaway2000 • 4 years ago

and the costs that those tax dollars you should have paid are spread over everyone else who paid....meaning everyone else pays more to give you a break.

Colsa2 • 4 years ago

It's not my money its the company's money. I can only take the money when my company makes a distribution, when I do in fact pay a lot of income tax on it.

And who the hell are you to say what's mine should belong to everyone else? Everyone else does not pay more. Everyone other company pays the same amount because everyone else is depreciating capital investments too.

blackmallow • 4 years ago

Aren't drilling rigs pretty much dependent on WHERE the drilling takes place? Manufacturers can use their assets in the US as well as abroad, so "tax incentives" are more strategic on that stage, no?

So basically, the risk to losing blue collar jobs, as a result of drilling assets being deployed elsewhere than in the US, is dependent on how possibly profitable US drill sites, without the tax deductions, are compared to somewhere else in the world (with or without tax deductions at that spot), no? That's basically the risk government is taking by eliminating these "tax deductions".

Refineries are supposedly expensive to build and/or move, so government needs to remove tax deductions just enough to assure that relocating existing activities is not worth the cost of the removed deduction.

Why can't government think like a business in cases like this?

Colsa2 • 4 years ago

That doesn't make any sense. This would only create a loophole if companies could depreciate a drilling rig they purchased in the US and then deployed the drilling elsewhere. This does not happen in reality because rigs are gigantic and extremely expensive to transport. It also does not happen in reality because the US has a very large and growing oil and gas industry that is right now constantly trying to deploy more and more rigs to the US from abroad.

These tax deductions actively encourage investment only in the US.

Why do you want to increase taxes on refineries? Most refineries in the US are already very unprofitable and are losing money. Raising their taxes right now would only force them to pass on more costs directly to customers and raise the price of gasoline.

blackmallow • 4 years ago

That's not the essence of what I wrote.

What I mean, in other words, is that drilling assets are limited to the site where the drilling takes place, compared to manufacturing assets, which are not. So the options of where to deploy said asset is much more dependent on geography for drilling than for manufacturing. Which means if "somewhere in the US" is chosen as a drill site, is the choice warranted because of tax legislation or because of probability of oil extraction?

As for refineries not being profitable, why is that government's problem? From what I hear, relocation is almost impossible because of the costs associated. Why not take advantage of the situation, I know business would.

neroden • 3 years ago

None of these subsidies are depreciation. Not one of them.

neroden • 3 years ago

Depreciation has nothing to do with these subsidies.

Not one of these subsidies is "depreciation".

michael mcmenus • 4 years ago

Economists also agree that corporations don't really pay any taxes, they just collect them from their customers. Robert Reich even believes corporate income taxes should be eliminated.

neroden • 3 years ago

This is actually wrong. Corporations really do pay taxes. There's a large literature on "tax incidence". Basically, if the corporation *can't* raise prices (because consumers will just stop buying their products), then corporate taxes are paid by the corporate executives and stockholders. (This is called "elastic demand").

If the corporation can raise prices and force everyone to keep buying their product (inelastic demand) then the taxes end up being paid by the customers. Of course, in this case, the corporation is a problem and shouldn't exist.

Dan • 3 years ago

I know this is an old post, so no need to reply...
What about US companies that sell to foreign customers?
In this case, taxes are effectively collected from customers in other countries - net income for US.
But what should we expect if corporate taxes were eliminated?
Do you think we would see a 15% (or whatever effective tax rate is) in prices or higher pay, or will much (perhaps all) of the tax savings got toward higher profits instead?

neroden • 3 years ago

These are subsidies. The fact that they're entered on tax forms doesn't change that. They're plain, straight-up subsidies -- they're simply subtracted from the oil companies' tax bill. Some of them are even "refundable", meaning if the oil company doesn't owe taxes, the government issues checks to the oil company.

Jenna Zachary • 4 years ago

If there's money to be made sucking oil out of the ground, in the end, somebody is likely to do it. ... http://www.Makingover68doll...

Guest • 4 years ago
Colsa2 • 4 years ago

No, because it is structured differently and may or may not be encouraging behavior that may or may not occur anyway. Oil companies can only deduct loses from depreciation when the value of their assets actually goes down due to a loss of its resale value as wear and tear accumulates over time.

They can only benefit from this tax deduction when they are actually buying capital equipment, such as rigs, and spending money on the blue collar jobs for workers that need to build and work on these rigs.

A subsidy, on the other hand, might be encouraging an activity they would have done anyway and might simply be diverted into executive pay or dividends.

neroden • 3 years ago

WRONG. Oil companies can deduct "percentage depletion" even after they've completely depreciated the value of an oil well to zero. They can benefit from this tax dedcution when they are buying NO capital equipment and spending NO money on workers.

You need to learn the facts before you shoot your mouth off, Colsa2.

neroden • 3 years ago

Tax deductions like this are subsidies.

"Percentage depletion" isn't real depreciation. It's just a flat deduction of 20% of revenue, and it applies even after the oil company has already depreciated the property down to zero value.

David Lloyd-Jones • 4 years ago

But dGratt, an asset in the ground which didn't cost money is not a depreciable asset, and a licensing fee or purchase-price paid is not a tax.

The cost of finding oil in the past or prospecting for it in the future are both deductible expenses, and nobody is suggesting that they shouldn't be deducted -- or even capitalized and depreciated over time. The oil itself, however, to which the utterly notional "depletion allowance" is applied, is nothing like those legitimate expenses in sort, kind, or accounting principle.

I'm a great admirer of Sam Rayburn, and his inventiveness is one of the things one can admire about him. AS the article suggests, though, this shuck has had its run, and its time to call it offf with a good laugh and maybe a tip of the ten gallon hat.

-dlj.