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Tax Breaks for Oil Companies: Good for Business or Unfair Advantage?

May 12, 2011 at 12:00 AM EDT
Lawmakers targeted the oil industry's tax breaks and profits in budget debates Thursday. Judy Woodruff discusses the debate over tax breaks for oil production and other rules with The Energy Program at Public Citizen's Tyson Slocum and The American Petroleum Institute's Brian Johnson.
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JUDY WOODRUFF: The latest effort by Congress to target the oil industry over taxes and profits is hardly the first. But as we heard earlier, this time, the legislation is tied directly to the debate over debt and deficits.

It would limit tax breaks for oil production and modify other rules that companies use to lower their tax bills. All told, it would bring $21 billion in new revenue to the government. Well, we look now at whether it’s time to change those tax laws.

And for that, we turn to Tyson Slocum, the director of the Energy Program at Public Citizen, a national consumer interest group. And Brian Johnson, he’s a senior adviser on tax policy for the American Petroleum Institute, which represents the oil and gas industry.

Gentlemen, thank you both for being with us.

BRIAN JOHNSON, American Petroleum Institute: Thank you.

TYSON SLOCUM, Public Citizen: Great to be here.

JUDY WOODRUFF: Tyson, Tyson Slocum, I’m going to start with you.

What — what do you have against these tax breaks for the industry? And, in particular, just as an example, they get a break for drilling costs. Why shouldn’t they have that kind of a break?

TYSON SLOCUM: Well, because average Americans are being asked to belt-tighten. We’re cutting programs for higher education assistance.

And so, if we’re asking average Americans to belt-tighten, I think that we ought to target the most profitable industry in the U.S. economy. The fact is, is that the oil industry’s primary signals for investment in exploration and production is the market price of crude oil, which is stubbornly over $100 a barrel.

That is providing ample incentive for the industry to do what it does best, which is extract oil that we need in our economy. We use 20 million barrels of oil every day. We do not need, as taxpayers, to provide subsidies, whether in the form of tax breaks or royalty relief, that total between $8 billion and $10 billion a year to this very profitable industry.

I think it’s time that the industry acknowledge that they don’t need these tax breaks, like they did back in 2005, when they said that they didn’t need these tax breaks to do their business.

JUDY WOODRUFF: Brian Johnson, you’re familiar with the argument that the industry is doing so well that it doesn’t need these additional incentives to continue doing its job, doing what it does.

BRIAN JOHNSON: I would actually agree with my good friend Tyson. We believe taxpayers shouldn’t be subsidizing any form of energy.

Currently, American oil and gas companies do not receive taxpayer subsidies, contrary to popular belief. There’s not one credit in the tax code for us. Uncle Sam isn’t taking money out of your pocket and giving it to any company.

We benefit from deductions and cost recovery, just like any other industry. And we really want equitable treatment. If it’s available for others, it should be available to us as well.

JUDY WOODRUFF: So, who are you saying it is available to that — that is equivalent to what the oil industry gets?

BRIAN JOHNSON: Right.

Well, Section 199, for example, is a jobs provision to create jobs. It’s available to Starbucks for grinding imported coffee in the U.S. and The New York Times for printing papers.

To single out our industry and to use the tax code in a vindictive manner sends the message that our job in our industry isn’t as good as a job somewhere else.

JUDY WOODRUFF: Tyson Slocum, what about this argument that this industry, the oil and gas industry, is simply getting tax breaks that every other corporation in a similar situation gets?

TYSON SLOCUM: No, absolutely not. These are special tax breaks that are unique to the industry.

And this isn’t about being vindictive. This is about fairness. We have got Americans paying $4 or more for a gallon of gas. Economists are warning that these sustained high prices threaten the very fragile economic recovery. And consumers are being hit twice, once through these high energy prices, and a second time through reduced federal revenues because of these tax breaks.

The fact is, is that the oil industry is enjoying windfall profits. Over the last few years, since 2005, not only have they had more than $500 billion in profits, the largest five companies, but they have spent nearly half-a-trillion dollars buying back their stock and paying out cash dividends to their shareholders.

That’s great if you’re a shareholder of these companies. But the fact is it’s a massive misallocation of capital. Imagine if we had spent half-a trillion dollars in solar panels on the roofs of homes or deploying electric cars or investing in mass transit?

JUDY WOODRUFF: Let me…

TYSON SLOCUM: The fact is, is that we need to increase taxes on these oil companies to capture their huge amounts of revenue, so we can invest in the things that we need to get off of our harmful addiction to oil.

JUDY WOODRUFF: Right.

Let me try to get to his main point there, that the companies are awash, if you accept those figures, in profits.

BRIAN JOHNSON: Yes.

JUDY WOODRUFF: And, therefore, how — why then do you deserve these additional favors, I think he’s saying or suggesting, from the government?

BRIAN JOHNSON: Right. No, that was a lot there.

Our industry does — our profits are high. We sell a lot of product. If you look at our earnings, we only earn 5.6 cents for every dollar sold. That’s under the national average for manufacturing.

What do we do with those profits? You know, we do silly things like invest in pensions, state pensions, as a matter of fact, which we all know states are seeking bailouts left and right from the federal government to prop up these state pensions. Our assets in these state pension plans perform on average at 46 percent rate of return, compared to an average 13 percent for others.

So, he also mentioned stocks. Only 1.5 percent of the stocks of our company are owned by corporate management. The rest are owned by you, Mr. Slocum, who I assume has a retirement plan, a 401(k), an IRA. That’s who raising taxes are really going to hurt, the American investor, the teacher, the firefighter. And they’re not going to do anything to lower the price at the pump.

JUDY WOODRUFF: Brian Johnson, what would happen if these tax incentives, breaks, whatever you want to call them, were taken away from the industry? The argument is made on the other side that it would lead to lower fuel prices, presumably.

BRIAN JOHNSON: Right.

Well, if you raise taxes on this one industry, you’re not only going to cost jobs; you’re going to cost production. Just two of these tax deductions, if you take them away from our industry, you’re looking at 600,000 barrels of oil equivalent lost per day, 58,000 jobs in one year.

You know, we’re an industry that pays $87 million a day to the federal government. That’s about $37 billion a year in rents, royalties, and lease payments. If you want to talk about controlling the deficit, if you increase access between now and 2025, we would be able to give the federal treasury $149 billion. So, we are paying our fair share, and we’re willing to do our part.

JUDY WOODRUFF: So — so, Tyson Slocum, lost production and less revenue is the argument we’re hearing for the government, rather than more.

TYSON SLOCUM: No, that’s false.

The fact is, is that the primary indicator of where oil companies make their investments is what — the market price of crude oil. They are not making their decisions based on domestic tax policy. And the fact is oil companies — oil companies…

BRIAN JOHNSON: You tell that to a — you tell that to a rig worker. You tell that to a worker who is laid off.

TYSON SLOCUM: You guys are not going to be laying off workers because we increase tax rates by a couple of billion dollars for the entire industry.

You guys — the average cost to extract a barrel of oil is around $20. You’re selling it back to the American people for over $100. That is a huge profit margin. And there’s a responsibility there to give something back, especially because the oil industry is not making the investments that we need to get off of our addiction to oil.

JUDY WOODRUFF: What about that last…

BRIAN JOHNSON: Right.

JUDY WOODRUFF: … that last point that he made?

BRIAN JOHNSON: Well, we have invested $1.7 trillion since 2000 in alternative energy and new technologies. Between 2000 and 2008, we have invested $58 billion in zero-carbon technologies.

We’re investing more in the private sector than the government provided — or — I’m sorry — combined. So, we are doing our part. And I think, as you heard today the CEOs say, they are investing in new forms of energy. I mean, we understand that. And we don’t think any form of energy should be subsidized by the taxpayer. You know, we certainly aren’t receiving credits. And we think it should be a level playing field.

JUDY WOODRUFF: All right, gentlemen, we are going to have to leave it there, clear differences between the two of you.

Brian Johnson, the American Petroleum Institute, Tyson Slocum with Public Citizen, thank you both.

BRIAN JOHNSON: Thank you.

TYSON SLOCUM: Thank you.