Jacked Up Gas Prices Are Creating a Windfall for Big Oil -- Time to End Their $4 Billion in Subsidies From Taxpayers
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This story was written by Faiz Shakir, Benjamin Armbruster, Zaid Jilani, Alex Seitz-Wald, Tanya Somanader, and Travis Waldron.
While Americans are continually struggling to manage their financial burdens, one group is celebrating rising gas prices: Big Oil. In the last few months, oil companies have raked in massive profits from the pump and reinvested that windfall into their own companies in order to line their pockets. But, as the Center for American Progress's Valeri Vasquez notes, "the burden on American taxpayers begins well before they fill up at the gas station." Americans are footing the bill for more than $4 billion in unnecessary tax subsidies doled out to oil companies annually. At a time when Congress is slash-and-burning the budget to ameliorate the deficit, Americans are increasingly indignant over such corporate welfare -- and Republicans are feeling the backlash. Struggling under widespread public pressure to eliminate the oil subsidies, Republicans are backing away from their Big Oil patrons -- and their own voting records -- to tepidly endorse the idea. Jumping on this window of opportunity, Democrats on Capitol Hill are now pushing multiple measures to force a vote on eliminating the tax loopholes piece by piece. And while the GOP retains the majority in the House, they will have to turn their back on the majority of the American people and their own commitment to reduce wasteful spending in order to side with Big Oil.
Profiting off the Pump
There's no question of who's paying -- and who's pocketing -- for the price at the oil pump. Americans spent 28 percent more for gasoline during the first three months of 2011 than during those in 2010. The five big oil companies -- BP, Chevron, Conoco Phillips, ExxonMobil, and Shell -- made 38 percent more profit. In fact, this week, those companies announced that their first quarter profits, with oil well over $100 per barrel, came to more than $30 billion. Exxon alone registered nearly $11 billion in profits, up 69 percent from its first quarter profit last year. This windfall is not coming from the pumps alone, it's also coming straight out of the American taxpayer's pocket.
Oil companies specifically benefited from $3.96 billion in tax expenditures in 2010. As the Center for American Progress's Seth Hanlon outlines in detail, these unnecessary and outdated tax breaks include a break for percentage depletion, a break for domestic manufacturing of oil production, a break for "intangible drilling costs," a break for doing business overseas, a break to write off the costs of searching for oil, and the "last in, first out" break which essentially allows oil companies to pay less income taxes if the price of oil goes up. As Vasquez notes, these are activities that companies would already undertake and profit from without federal assistance. In total, these subsidies will cost taxpayers as much as $76.6 billion over the next decade. But rather than investing these profits in alternative energy or even more oil exploration, Big Oil is spending the vast majority of its net profit on enriching executives. A Citizens for Tax Justice report reveals that, between 2005 and 2010, the five largest oil companies used their profits to pay dividends and purchase its own stock. In doing so, the companies are driving up the companies' share prices to the benefit of their board of directors and senior managers " whose compensation depends in part on rising stock values."
Incidentally, another chunk of Big Oil profits pays campaign contributions to friendly lawmakers. 77 percent of the $65 million the oil and gas industry contributed in 2009 and 2010 went to Republicans. But the rising resentment of Americans who are footing the bill is sharply diluting that influence. GOP lawmakers are facing 74 percent of Americans who support eliminating tax breaks to oil. Even when presented with Big Oil's bogus argument that ending the tax breaks would increase gas prices, 69 percent of voters -- including a majority of Republicans -- supported their elimination. Even Tea Party activists want them gone.