Four Ridiculous Subsidies for Big Oil That Should Get the Boot


Photo: zieak via Flickr/CC BY

I just reported on the sky-high quarterly profits of the 'Big Five' oil companies, and discussed how those huge revenue streams certainly weren't softening them up on the issue of giving up their multibillion dollar oil subsidies. By now, you've probably heard a lot of talk about said subsidies -- annual tax breaks and government aid extended to help some of the most profitable companies on the planet. But what do they really look like? Where do those dollars actually go?Plenty of places. CNN breaks it down in a handy article published last week, Big Oil's $4 billion tax break in doubt. For the record, the oil companies get much more in annual subsidies than that, for things like exploration costs -- these are merely the ones that Obama and some Democrats have targeted to cut budgetary spending.

Here are the breaks they're gunning for, via CNN (commentary in brackets is mine):


  • Domestic manufacturing tax deduction: This is the largest single tax break, and would save over $1.7 billion a year if eliminated. The tax deduction, passed in 2004, is designed to keep factories in the United States. Companies that manufacture here can deduct 9% of their income from operations that are attributed to domestic production. [Where else are they going to domestically produce oil? This deduction was designed for other industries, and Big Oil exploits it]

  • The percentage depletion allowance: This lets oil companies deduct about 15% of the money generated from a well from its taxes. Eliminating it would save about $1 billion a year ... critics say oil in the ground is not capital equipment, but a national resource that the oil companies are simply using for their own profit. [And they're right -- companies shouldn't be able to stake ownership of natural resources, then deduct their purported value.]

  • The foreign tax credit: This provision gives companies a credit for any taxes they pay to other countries. Altering this tax credit would save about $850 million a year.

  • Intangible drilling costs: This lets the industry write off about $780 million a year for things like wages, fuel, repairs and hauling costs. All industries get to write off the costs of doing business, but they must take it over the life of an investment. The oil industry gets to take the drilling credit in the first year. [This one is simply stupid, and unfair. Period.]

Clearly, the oil industry is not dependent on a single one of these subsidies: they're all borderline weasel-y drains for taxpayer money -- that could certainly be better spend elsewhere.

More on Oil Subsidies
Huge Oil Company Profits Roll In: Up 42% From Last Year
Obama Seeks to Cut $38 Billion Coal & Oil Subsidies Out of Budget ...

Tags: Oil | United States