An industry’s tax breaks

Saturday, July 10, 2010 | 2:06 a.m.

The BP oil spill disaster — a catastrophe that led to the loss of 11 lives and untold damage to the economy, wildlife and the environment along the Gulf Coast — has brought into full view what lax government oversight can sow. The lack of serious regulation isn’t the only issue that deserves further investigation — the lucrative tax breaks the oil industry receives should be put under a congressional microscope as well.

The New York Times investigated the oil industry’s subsidies and reported Sunday that they totaled $4 billion annually, adding that “an examination of the tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.” For example, a 2005 study by the Congressional Budget Office, the most recent to date, said that capital investments, such as oil field leases and drilling equipment, are taxed at 9 percent. In contrast, the rate for businesses in general, according to the Times, is 25 percent.

In the case of the Deepwater Horizon drilling platform in the Gulf Coast, whose oil spill is the worst in U.S. history, it had been raking in tax benefits before disaster hit more than two months ago. Transocean, owner of the platform, was registered in the Marshall Islands, reducing its U.S. taxes. The company further reduced its American taxes when it moved its corporate headquarters from Houston, first to the Cayman Islands in 1999 and then to Switzerland in 2008, according to the Times.

That’s not all. BP benefited handsomely by leasing the Deepwater Horizon. The British company, the Times noted, “used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.”

Over the next decade, the Obama administration wants to cut $20 billion in tax breaks the oil industry currently receives. But the industry is pushing back, saying the tax breaks are essential, and taking them away will mean lost jobs and higher fuel prices.

“These companies evaluate costs, risks and opportunities across the globe,” said Jack Gerard, president of the American Petroleum Institute. “So if the U.S. makes changes in the tax code that discourage drilling in Gulf waters, they will go elsewhere and take their jobs with them.”

Congress should dismiss such talk. This is an issue of tax equity and, as the Times pointed out in its story, in 2009 a Treasury Department economist contended that the price of oil and potential profits were so high that getting rid of the subsidies would lower U.S. output by less than one half of 1 percent.

We understand that the oil industry is important to our economy, and that this nation’s dependence on fossil fuels won’t end overnight, but that doesn’t excuse the oil industry from paying its fair share of taxes.