Section 199 – The Biggest Subsidy
theoildrum.com
The biggest ‘oil company subsidy’ — amounting to $1.7 billion per year for the oil industry — is a manufacturer’s tax deduction that is explained in Section 199 of the IRS code. This is a tax credit designed to keep manufacturing in the U.S., but it isn’t limited to oil companies. It is a tax credit enjoyed by ethanol companies (have you ever heard anyone call it an ethanol subsidy?), computer companies (we are subsidizing Microsoft and Google!) and foreign companies that operate factories in the U.S.
One never hears of proposals to entirely do away with Section 199. Apparently, since this tax credit was designed as an incentive to keep manufacturing in the U.S., many would feel that eliminating it for all companies would provide less incentive for them to keep their factories in the U.S. Some of the same people apparently don’t believe this reasoning will apply with the oil industry.
So, the proposal is to disallow a tax credit to Texas-based ExxonMobil for their U.S.-based refining operations, while leaving it in place for foreign-based firms like Mercedes, BMW, and Toshiba that operate factories in the U.S. After all, as one staffer from the Center for American Progress smugly (and naively) put it in the CNN story, “What are they going to do, move the oil field to the North Sea?” Exactly. They are trapped and there isn’t a thing they can do about it. They can’t move their oil fields, so we can tax them silly. Nor can they move their drilling rigs or refining operations. Wait, I guess they could move those, but will they? Well, this is the same model Hugo Chavez used to mismanage Venezuela’s oil industry into the ground and dry up foreign investment in the oil industry there. He thought that since foreign oil companies were trapped, he could tax them at will. Instead, they just left.
If we make it less profitable for oil companies to operate here than in foreign countries, surely they wouldn’t shift operations out of the U.S. as Halliburton did in 2007. OK, they might, but so what? It’s Big Oil we are talking about here. Who cares if they leave the U.S.? At least if we shift those refining jobs in Texas, Louisiana, and California to the new refineries being built in Saudi Arabia, we will no longer have to listen to reports of windfall profits, since Saudi Aramco doesn’t publicly disclose their profits. |
