You are hereNYT: As Oil Industry Fights a Tax, It Reaps Subsidies

NYT: As Oil Industry Fights a Tax, It Reaps Subsidies


April 3, 2010- When the Deepwater Horizon drilling platform set off the worst oil spill at sea in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to significantly reduce its American taxes.

The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, maneuvers that also helped it avoid taxes.

At the same time, BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.

With federal officials now considering a new tax on petroleum production to pay for the cleanup, the industry is fighting the measure, warning that it will lead to job losses and higher gasoline prices, as well as an increased dependence on foreign oil.

But an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.

“The flow of revenues to oil companies is like the gusher at the bottom of the Gulf of Mexico: heavy and constant,” said Senator Robert Menendez, Democrat of New Jersey, who has worked alongside the Obama administration on a bill that would cut $20 billion in oil industry tax breaks over the next decade. “There is no reason for these corporations to shortchange the American taxpayer.”

Oil industry officials say that the tax breaks, which average about $4 billion a year according to various government reports, are a bargain for taxpayers. By helping producers weather market fluctuations and invest in technology, tax incentives are supporting an industry that the officials say provides 9.2 million jobs.

The American Petroleum Institute, an industry advocacy group, argues that even with subsidies, oil producers paid or incurred $280 billion in American income taxes from 2006 to 2008, and pay a higher percentage of their earnings in taxes than most other American corporations.

As oil continues to spread across the Gulf of Mexico, however, the industry is being forced to defend tax breaks that some say are being abused or are outdated.

FULL STORY HERE:

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