The President’s Energy Policy Hypocrisy

BY MERRILL MATTHEWS

President Obama can rightfully be accused of many things — but not a rigid adherence to consistency. As he inaccurately rails against the oil and natural gas industry’s “unfair” tax breaks, he’s doling out billions to that industry’s competitors.

The recent fiscal cliff deal included 12 different “tax extenders” for green energy projects. The total cost to taxpayers? $18.1 billion over the next decade.

The package includes some truly ridiculous tax breaks. It tosses $59 million at cellulosic biofuels, which are manufactured from wood and grass. It earmarks $7 million for the purchase of electric motorcycles. It reinstates a credit for the creation of renewable fueling stations that could total $30,000 per facility.

This is just the president’s latest effort to bolster green energy. His stimulus bill included $90 billion in handouts for green energy projects.

These funds weren’t restricted to tax breaks. The handouts also included loans, loan guarantees, cash grants and interest subsidies. After all, a tax break doesn’t help much if a company isn’t making any money, and the Heritage Foundation recently found that 34 green tech companies receiving federal largess have either gone bankrupt or are headed toward insolvency.

Yet Obama routinely complains that the oil and natural gas sector benefits from “special” tax treatment. Democrats regularly call for the elimination of these supposed favors to raise new revenues. But these companies don’t get special breaks, just standard benefits available to all businesses.

Essentially, the oil industry takes advantage of four types of breaks.

One has to do with intangible drilling costs. Energy companies can deduct the costs associated with drilling, just like other companies can deduct the costs associated with research and development.

The second break is the “dual capacity” rule. To ensure profits aren’t taxed twice, oil and gas firms operating abroad can take a tax credit against their U.S. taxes based on how much they paid abroad. All U.S. companies with international operations get that break.

Then there’s the “domestic activities” deduction, affording big companies that create products in the United States a 9 percent deduction. Oil companies get this break for domestically produced oil and gas, but theirs is just 6 percent. This break is designed to keep economic activity onshore.

Finally, there’s a “percentage depletion” provision that allows smaller oil and gas companies to take a 15 percent deduction once underground energy pockets go dry. This break is similar to the depreciation deduction companies can take when they make capital expenditures.

The bottom line? The oil and natural gas sector’s special tax breaks are standard benefits extended to companies in many different industries.

Plus, current rates still generate huge public revenues. The oil and gas industry paid about $36 billion in federal taxes in 2009 – the last year of data. If it weren’t for the taxes those companies pay, where would Obama get funds to waste on his fruitless green energy competitors?

Merrill Matthews is a resident scholar at the Institute for Policy Innovation in Dallas, Texas. Follow him on twitter: @MerrillMatthews

  cash grants, hypocrisy, interest subsidies, loan guarantees, loans, President Obama, tax breaks