Free Markets, Free People

Here are a few questions for you …

Call it a little thought exercise.

If you are an industry that has gotten tax breaks related to the cost of your production since there’s been an IRS and those tax breaks are the same sort of tax breaks every other producer or manufacturer in the country gets (well, except in some cases they single your industry out for less of a break than the others) and now the Congress wants to selectively punish your industry (for whatever reason – oh, yeah, making too much money) and no other (we’re not talking across the board cuts – just “Big Oil”) by removing all such breaks, what would you do?

Linking two of the politically volatile issues of the moment, Senate Democrats say they will move forward this week with a plan that would eliminate tax breaks for big oil companies and divert the savings to offset the deficit.

Now, I’m on record for removing subsidies for all businesses, and it is argued by some that a tax break is a form of subsidy.  But only if you believe all money belongs to government.  Instead a tax break lets a company (or individual) keep more of the money it (he or she) has earned.  A subsidy, on the other hand, or at least as I define it, is a payment from government to a company (or individual) which has been taken in taxes from other companies (or individuals).  I.e. it isn’t earned.

So, back to the point – if you’re an oil company, like ExxonMobil, for instance, and you’re thinking about building a refinery, would an antagonistic government and their tax policy focused on only stripping your industry of tax breaks other industries get figure into your decision?

Well of course it would.  Why?  Because your job is to give the best possible return to your shareholders’ investment.  So you are obviously going to make a decision to build that refinery somewhere that will help fulfill that goal.  Most likely, all things being equal, tax rates, business climate and a non-hostile governmental atmosphere are going to factor heavily in that decision.

If you had the whole world from which to choose a location  – and for the most part ExxonMobil does – would you build it here given your primary goal and given the above nonsense from Congress?

I bring all this up now just to have you think about it a bit.  More – and more specifics about my point – later in the week.


Twitter: @McQandO


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10 Responses to Here are a few questions for you …

  • I suspect that before long, muggers will rob you with the line … “Give me OUR money.”

  • I’m an operator, not an accountant, so here’s my two cents. A rational person should be willing to acknowledge that taxes are a cost, no different from wages, utilities or equipment. Just like any other cost, the cost of taxes is paid by the consumer. Since we don’t inhabit that rational world, the best solution (from my perspective) is a tax based on gross receipts. In effect, a flat tax on business income.
    Granted, this cost will be passed on to customers, but a flat tax of 1% on gross receipts should be feasible. Taxes distort economic decisions so the best tax is one were the burden is small but includes as much economic activity as feasible.

  • Cynical me regards this as a two-fer for the dems:

    1.  They are throwing some serious red meat to the gorebots in their base, and also generating a nice Goldstein for the proles to hate while gas prices (and everything else) go through the roof because of Captain Bullsh*t’s policies, and;

    2.  The oil companies will be making lots more “campaign contributions” to get them to NOT actually do it.  I think that we know how easy it is for the Congress to pass a law that looks like it does one thing while it actually does another. 

    It may be, too, that the dems are playing a little brinksmanship: they are threatening the oil companies, but believe that the GOP in the House will ultimately not let any such bill find its way to Captain Bullsh*t’s desk.

  • Intangible Drilling Costs – Companies which engage purely in energy exploration and discovery can recover their costs related to exploration at tax time at a rate of 100%. This lessens the burden on energy providers for the number of “dry holes” which may be found in the process. Integrated companies (i.e. “big oil”) can recover these exploration costs at 70%. Not a subsidy.
    Domestic Manufacturer’s Deduction (Section 199) – A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S. The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.
    Percentage Depletion – The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. This depletion method is not available to companies that produce oil as well as refine and market it (i.e. “Big Oil”.) This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.

    • You nailed ’em Neo – that’s precisely what they’re attempting to take away in Congress.

      • Awww come on boss, you know that’s one of Dear Golfer’s favorite stories, that those oil companies have all that land they lease which just MUST have oil under it in quantities that MUST provide a profit after exploration and development.   Everything he knows about the oil business he learned from watching Jed Clampit bring in a gusher with his shot gun.

  • From: Ragspierre, President & CEO of MEGAOil Corp.
    To: President Obama & Deemocrats
    Subject: Portability
    Dear Sir and Members of Congress;
    Bub eye.
    Ragspierre (citizen of the world)
    PS: Money…and jobs…go where they are not targets.

  • What needs to happen is for Congress to divert all the spending gong to “renewable energy” subsidies to building some pipeline infrastructure from our hydrocarbon-in-shale deposits to our oil refineries.  While we are at it we can discontinue the Department of Education, the Department of Agriculture and the EPA.  I can go on and on and ….

  • what would you do?

    That seems simple. If I’m making my bones at 2¢ or 7¢ or whatever per gallon of refined fuel I sell, I will do all I can to continue earning more profit tomorrow than I do today. So, if my costs have gone up due to tax code, I will recover those costs somewhere or else go out of business. It could be higher prices at the pump, fewer employees on the payroll, less capital equipment I’m willing to buy, or any other of dozens or hundreds of choices to make. Rest assured, though — I will recover that increase in my costs of doing business or I will go out of business.