House Democrats plan to force a vote on an amendment today that they claim would cut “subsidies” to “Big Oil.” In reality, their legislation would repeal a domestic manufacturing tax credit available to all maufacturing firms, but only for the five largest oil companies. The measure would do nothing to lower gas prices and would only net $12.5 billion in more taxes over ten years.
This House Democrat oil subsidy cut plan is not to be confused with President Obama’s more ambitious plan to cut oil company tax breaks by $43.6 billion over ten years. Why is the House Democrat plan so much weaker than the Obama plan? Because the Obama plan would give Big Oil a huge win by making their smaller competitors less competitve. Cato’s Jerry Taylor and Peter Van Doren explain:
Finally, small oil companies (not, incidentally, “Big Oil” companies) are allowed to deduct a specified percentage of their gross income from the taxes due from producing fields rather than simply deduct the actual costs of the capital investment over time. The subsidy arises when the deductions exceed the actual investment costs. This aspect of the tax code will cost the treasury $11.2 billion over 10 years.
Taylor and Van Doren stress that there is no economic justification for any of these tax breaks, and they are right. But the difference between the White House and the House Democrat bills highlights how difficult it will be for the left to solve their high gas price liabilities be raising taxes on oil companies.
