Jacked Up Gas Prices Are Creating a Windfall for Big Oil -- Time to End Their $4 Billion in Subsidies From Taxpayers

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 As the Center for American Progress's Seth Hanlon outlines in detail, these unnecessary and outdated tax breaks include a break for percentage depletion, a break for domestic manufacturing of oil production, a break for "intangible drilling costs," a break for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."

GOP Hypocrisy

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.

The Republican response to the idea has ranged from confusion to sheer laughter to outright denial that the subsidies even exist. GOP presidential hopeful Tim Pawlenty (MN) called the notion a "ludicrous" "tax increase" on oil companies. But as more and more Americans condemn such corporate welfare at townhalls, several Republican lawmakers are backpedaling hard to get in line with public opinion. Rep. Denny Rehberg (R-MT), Rep. Paul Ryan (R-WI), Rep. Mick Mulvaney (R-SC), Rep. Tom Graves (R-GA), and Rep. Dan Webster (R-FL) all told constituents they'd support eliminating the subsidies. Even House Speaker John Boehner (R-OH) admitted -- however fleetingly -- that oil companies "ought to be paying their fair share." This support signals a promising shift that is only undermined by one small detail. Every single Republican voted in lockstep to protect the Big Oil subsidies on March 1, 2011. And since Ryan's budget "retains $40 billion in Big Oil tax loopholes," they actually supported them twice. 

Pulling the Trigger

Taking advantage of Republicans that have "seen the light," the Democrats are building momentum to successfully revive a decades-old push to eliminate the industry tax breaks. All 15 Democrats on the House Ways and Means Committee this week strongly urged Chairman David Camp (R-MI) to schedule a session to move tax subsidy repeal. Rep. Earl Blumenauer (D-OR) led 30 other members in a letter to Boehner pushing an up-or-down vote on the Ending Big Oil Tax Subsidies Act. Rep. Tim Bishop (D-NY) signaled yesterday that House Democrats will use a procedural move today to force a vote on "a motion to repeal the Section 199 domestic manufacturing tax credit for the five largest oil companies." Bishop will offer the motion during today's debate on the first in a three-bill domestic oil-and-gas drilling package that's been fast-tracked by GOP leadership. In the upper chamber, Senate Majority Leader Harry Reid (D-NV) will unveil a plan next Wednesday to eliminate the tax breaks and take a vote "as soon as possible." This legislative action is welcome news to President Obama, who has repeatedly urged Congress to halt subsidizing oil companies and to invest in alternative energy instead.

"When oil companies are making huge profits and you're struggling at the pump, and we're scouring the federal budget for spending we can afford to do without, these tax giveaways aren't right," he said in his last weekly radio address. With the White House, Congress, and the majority of the American people aggressively pushing to eliminate Big Oil subsidies, Republicans are being backed into a corner. Even President George W. Bush in 2005 noted that "we don't need incentives to the oil and gas companies to explore. There are plenty of incentives." To claim -- and to vote -- as if the subsidies are "legitimate tax provisions" is to quite literally side with ExxonMobil over the American people.


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