May 21, 2018
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Cut Oil Tax Breaks

The Senate missed an important opportunity to cut tax breaks to the country’s five biggest oil companies this week. Rather than continue to be apologists for the highly profitable industry, members of Congress should follow the lead of Maine’s delegation and end the $2 billion in yearly public subsidies.

This particular tax break is worth examining because it can be considered on multiple levels. First are the numbers. In the context of the federal budget, $2 billion isn’t much money. But it is revenue the federal government is forgoing at a time when deficits are hitting historic highs.

“Reducing or eliminating unnecessary subsidies and outdated tax breaks is a common-sense step toward deficit reduction,” Sen. Susan Collins said in explaining why she voted to eliminate the tax breaks Tuesday.

If the tax cut were eliminated, it would bring at least $20 billion in 10 years, money that could be used to reduce the tax burden on small businesses or middle class filers.

The next level of consideration is to review the purpose of tax breaks. Typically, government lets tax revenue slide on some businesses or individuals as a means of encouraging certain activities that clearly work toward the greater good. Setting income tax rates lower for married couples is one example; deducting college tuition expenses is another; so is the write-off for businesses that purchase new equipment.

Do oil companies need the artificial incentive of a federal tax break in order to operate? The five biggest oil companies made $36 billion profit in the first quarter of 2011, which suggests there is ample motive for them to drill, refine and distribute their product.

Those who oppose ending the tax break say the impetus for the change is punitive. Because these companies are making money faster than they can count it, they’re easy targets, is the charge.

But there is a more sophisticated way to understand the issue. If oil companies are reaping such big profits, they ought to pay more for the ports, roads and bridges on which they rely to move their product; for the military and law enforcement that keeps the product safe, abroad and at home; for the secure financial system that allows them to buy and sell.

And this leads to a basic principle that has always guided tax policy: the ability to pay. We try to distribute the tax burden in such a way that it doesn’t devastate any group or bracket. If the tax break disappears, oil companies will not retrench in production, they will not lay off employees, they will not raise prices. They merely will post slightly smaller profits.

That’s an outcome they and we can endure for the benefits that will come.

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