American taxpayers have subsidized fossil fuels for 111 years and counting

WASHINGTON – As a candidate, Joseph R. Biden Jr. in 2020 campaign to end billions of dollars in annual tax breaks for oil and gas companies within his first year in office.

It is a promise that he has not been able to keep as president.

Biden’s budget request to Congress this week was his fourth attempt to end what he called “wasteful subsidies” to an industry making record profits.

“Unlike previous administrations, I don’t think the federal government should be giving handouts to big oil,” Biden said said after his inauguration. His new budget proposal calls for the abolition of $35 billion in tax breaks that would otherwise be provided to the industry over the next ten years.

Mr. Biden’s wishes are opposed by the oil industry, Republicans in Congress and a handful of Democrats. In Washington, it seems that oil and gas subsidies are the zombies of the tax code: impossible to kill.

“Everyone agrees that fossil fuel subsidies are wasteful, stupid and moving things in the wrong direction,” said Michael L. Ross, a political science professor at the University of California, Los Angeles, who studies fossil fuel tax breaks. “Eliminating it seems to be one of the hardest things to achieve on the climate agenda.”

The oil and gas industry benefits from nearly a dozen tax breaks, including incentives for domestic production and depreciation associated with foreign production. The overall estimates vary widely; Environmental groups take a broad view of what constitutes a subsidy, while the industry takes a narrower definition. The Fossil Fuel Subsidy Tracker, managed by the Organization for Economic Co-operation and Development, put the total at about $14 billion by 2022.

Two of the biggest tax breaks have been around for about a century.

The oldest, known as “intangible drilling costs,” was created by the Revenue Act of 1913 and was aimed at encouraging the development of U.S. resources. The deduction allows companies to write off as much as 80 percent of drilling costs, such as employee wages and exploration work, in the first year of operation, before even a drop of oil is produced.

Another subsidy, dating from 1926, known as the depletion allowance, initially let oil companies deduct their taxable income by 27.5 percent, a number that seemed oddly specific.

“We could have taken a figure of 5 or 10 percent, but we took 27.5 percent because not only were we pigs, but the strange number made it seem like it was arrived at scientifically,” said Senator Tom Connally, Democrat from Texas who sponsored the break. and who died in 1963, was quoted as saying in “Sam Johnson’s Boy, a Close-Up of the President From Texas,” a biography of Lyndon B. Johnson.

That tax break turned out to be so lucrative that it attracted celebrities like… Jimmy Stewart, Frank Sinatra and Bing Crosby become oilmen on the other, by buying stakes in oil wells and using the deduction to protect their Hollywood income.

The deduction was eliminated in 1975 for large producers and reduced for smaller companies, which are still allowed to deduct 15 percent of their revenue from their taxable income.

Early on, lawmakers justified the deductions by saying they would help attract investors for oil drilling, which could be a risky endeavor. After all, not every well hits oil.

Today, Exxon Mobil and Chevron, the largest U.S. energy companies, are hugely profitable. American last year companies pumped an average of 13 million barrels per day, a record that has made the United States the world’s largest producer of crude oil, according to the U.S. Energy Information Administration. The country is also the world’s largest exporter of liquefied natural gas.

According to the White House, the oil and industrial sector is expected to reap $1.7 billion from the intangible drilling tax cut in 2025, and $9.7 billion over the next decade. It is expected to deliver $880 million in exhaustion tax credit benefits by 2025, and $15.6 billion by 2034.

Instead of investing in their companies, oil and gas companies have poured profits into “stock buybacks, mergers and acquisitions that benefited executives and wealthy shareholders,” the Biden administration said in a fact sheet accompanying the budget proposal.

The two fiscal stimulus measures together have increased the expected value of new oil and gas projects by billions of dollars in most years, and as much as $20 billion in years when oil prices were high, according to a U.S. State Department study. 2021 study by the Stockholm Environment Institutea research organization.

A New York Times analysis of lobbying reports found that energy companies have spent more than $30 million on lobbying efforts since Biden’s election, including preserving tax breaks for intangible drilling and depletion rights. The U.S. Chamber of Commerce, which spends more than $100 million annually on lobbying on a wide range of issues, also mentioned energy tax breaks in its lobbying reports.

Ending oil and gas subsidies is not a new idea, but it has never gotten very far.

President Barack Obama tried to eliminate tax breaks in almost every budget, but failed, even when Democrats controlled both the House of Representatives and the Senate from 2009 to 2011.

Among Democrats who have fought to preserve the subsidies is Sen. Joe Manchin III of West Virginia, the state that ranks second in coal production and fourth in natural gas. In the House of Representatives Vicente Gonzalez Jr. and Henry Cuellar, both Democrats from Texas, implored party leaders in 2021 to maintain the subsidies. They were accompanied by Filemon Vela Jr.a Democrat who also represented Texas in the House at the time.

Mr. Manchin said this week that Congress has passed tax incentives for both clean energy and fossil fuels and that coal, oil and gas should not be singled out for changes.

“The Biden administration and their radical climate advisors have ignored common sense by calling on Congress to remove these incentives before we achieve an energy transition that does not sacrifice reliability and affordability,” Mr. Manchin said in a statement.

Oil executives reject the term “subsidy” to describe tax policy. They argue that most industries receive tax deductions and that oil companies write off only a fraction of what they pay in federal taxes.

They also point out that federal subsidies for wind, solar and other forms of clean energy are expanding rapidly. The Energy Information Administration found that about 46 percent of federal energy subsidies between 2016 and 2022 were related to renewable energy.

Anne Bradbury, CEO of the American Exploration & Production Council, called Mr. Biden’s call to change the tax code “a direct attack on American energy production” that would damage an industry that supports more than 9 million jobs.

“This budget should not even get a vote in the House or Senate, and lawmakers in both chambers should craft fiscal policies that do not hinder American energy production,” Ms. Bradbury said in a statement.

Senator Lisa Murkowski, an Alaska Republican, dismissed Biden’s request to end the tax breaks as a message aimed at young climate activists. “Do I think it’s going anywhere? No,’ she said.

Semantics debate aside, the result is that the government is helping to artificially lower the price of producing oil, gas and coal in a way that it doesn’t for other manufacturers, economists say.

“It’s just corporate welfare,” said Joseph Aldy, a professor at Harvard University’s John F. Kennedy School of Government who has served as a special adviser to President Barack Obama on energy issues.

Others note the irony of continued government support for fossil fuels at a time when scientists say countries must quickly transition away from oil, gas and coal to reduce the carbon emissions that cause climate change.

Congress has a “fiscal and moral responsibility to prevent taxpayer dollars from padding the profits of an industry that is destroying our planet,” said Sen. Bernie Sanders, an independent of Vermont.

Last year, at the United Nations Climate Summit in Dubai, United Arab Emirates, nearly 200 countries signed a global agreement to transition away from fossil fuels and eliminate “inefficient” subsidies for coal, oil and gas. The United States was among the signatories.