Big Oil Breastfeeds In Public

Here’s a fairly boring memo on oil subsidies from the Congressional Research Service. Bottom line — when oil companies say they need their generous tax break to finance exploration and keep oil prices down, they’re making it up.

The Section 199 deduction for the oil industry is a 6% deduction from net income… the repeal of the Section 199 deduction is equivalent to an increase in the tax on corporate profit. It is widely accepted that a proportional change in taxes on profit affects neither the firm’s incremental costs or revenues, and therefore does not change its
behavior with respect to output.

Since output does not change, there is little reason to believe that the price of oil, or gasoline, consumers face will increase.

…With current oil prices at, or near, $100 per barrel in the United States, it is unlikely that firms will slow production, or close wells as the result of the loss of the Section 199 deduction.

There was also testimony in Congress today that if the oil market were based just on the cost of finding and extracting a new barrel of oil from the ground, it would settle at between $60-$70, equivalent to a gas price of $1.90/gallon.