With everyone feeling the pressure of high gasoline prices, many want to lash out at a villain. And oil companies make the most convenient target. There's a lot of talk now eliminating "subsidies" to oil companies. If Democrats want to increase government revenue by cutting subsidies, cut farm subsidies. Oil companies don't get subsidies. What they do get are tax credits and deductions.
American Petroleum Institute has a paper summarizing them. Link. A short summary of that summary follows:
1. Intangible Drilling costs -- this is merely a deduction for 100% of the exploration costs in the year they are spent. It's only 70% for big oil companies in the first year.
2. Foreign tax credit -- allows companies to offset taxes paid to other countries.
3. Domestic Manufacturer's Deduction -- allows a deduction of 9% of income earned from anyone manufacturing, producing, growing or extracting in the United States except for oil companies. They only get a 6% deduction.
4. Depletion allowance -- available to oil and mining companies and is a deduction of a percentage of the gross income from a well or mine to take into consideration that the well or mine will eventually run dry. Not available to companies that refine and market it, i.e., the big oil companies.
5. LIFO -- last in first out is an accounting practice that provides that companies sell the most recently acquired inventory items first. Profits are reduced by the cost of the goods sold, and the higher the cost the lower the taxable profit. Companies in industries experiencing rising prices generally prefer LIFO accounting.
6. Expensing tertiary recovery injectants -- companies are currently allowed to treat as an expense the cost of the stuff they pump into the ground to break loose trapped oil and gas.
7. Geological and Geophysical costs -- small companies can expense exploration costs over two years, big oil companies can do it over seven years.
8. EOR and Marginal well credits -- apply only when oil prices are much lower than they are now, $42 for EOR credit and $27 for marginal well credit, and were implemented to encourage production when oil prices are low.
Of course there's another side of the argument. Jerry Taylor and Peter Van Doren at Forbes.com say eliminate these tax breaks not just for oil companies but for all businesses. To wit:
Whether you call them "subsidies" or "purple roses," what's going on here is the elimination of a favor not provided to other tax-paying businesses.