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Who Is the Pig at the Trough of Energy Tax Breaks?

Texas Insider

A standard bit of President Obama’s economic rhetoric has been to criticize tax breaks for companies that are doing things he doesn’t like, such as doing business overseas, or drilling for oil & gas.

“[H]igh oil prices provide more than enough profit motive to invest in domestic exploration and production without special tax breaks,” he wrote in a letter to Congress last year. And the Framework for Business Tax Reform that the President released in late February calls for eliminating oil and gas tax preferences.

The language in the Framework attempts to take the moral high ground, declaring that “we should eliminate all tax expenditures for specific industries, with a few exceptions that are critical to broader growth or fairness.”

But of course, allowing yourself “a few exceptions” provides a loophole wide enough to drive a windfarm though. And President Obama has.

Let’s cross reference the President’s rhetoric with a paper that was released yesterday from the Congressional Budget Office (CBO) which answers the musical question “How Much Does the Federal Government Support the Development and Production of Fuels and Energy Technologies?

The CBO paper tells us that tax preferences for fossil fuels have already dropped significantly since 2007, and are at or near average levels going all the way back to 1992. So the idea that somehow in recent years tax preferences for fossil fuels have gone up is simply untrue. They’ve gone down.

But guess which energy tax preferences HAVE exploded since, oh, 2009? Tax preferences for efficiency and renewable energy were $16 billion, or almost four times are large as the tax preferences for fossil fuels. Clearly, the President likes tax preferences for energy production just fine—so long as he can use them to favor his preferred types of energy production.

If fiscal responsibility demands cutting down on tax preferences for energy production, it’s pretty clear that it’s the preferences for renewable energy that are the problem, not the preferences for fossil fuels.

But if it’s just all about politics, we’ll constantly be changing the tax code to favor certain industries and disfavor others, depending on the political winds.

Here’s an idea: Let’s go with the President on “we should eliminate all tax expenditures for specific industries . . . .” and just stop there. Let’s cut ALL corporate welfare and favoritism out of the tax code, making the tax code truly neutral, so that our industrial base and the mix of industries is decided in the marketplace, rather than being manipulated by politically driven agendas?

In the meantime, if you’re worried about tax preferences for energy production, fossil fuel preferences aren’t the culprits.