Does US need to give gas and oil companies $41 billion a year?

[kristopher]

Desperately seeking fiscal savings, Congress and President Obama are scrambling to find anything in the federal budget that can be thrown overboard, from child nutrition aid to funding for military bands.

But the American people might be on to something. In a poll conducted for NBC and the Wall Street Journal, three-quarters of respondents favored "eliminating tax credits for the oil and gas industries." Specifically, 47 percent said they found such cuts "totally acceptable" and 27 percent said they found it "mostly acceptable."

To some budget hawks cutting subsidies to mature and profitable energy industries is an inevitable part of any budget deficit solution. "Clearly most of the attention has been focused on non-security discretionary budget,” says Steve Ellis, vice president of Taxpayers for Common Sense in Washington. “But even if we eliminated every dime of that, we would still have a trillion-dollar deficit. So these issues like subsidies for the oil and gas industry – and the tax code – are going to have to be tackled."

Finding and tallying federal energy subsidies, however, can be fiendishly difficult. Doug Koplow of the energy-consulting firm Earth Track in Cambridge, Mass., is considered one of the nation’s leading experts on the topic....

http://www.csmonitor.com/USA/Politics/2011/0309/Budget-hawks-Does-US-need-to-give-gas-and-oil-companies-41-billion-a-year


Here is a discussion about Koplow's recent report on nuclear subsidies.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x275881

[RUMMYisFROSTED]

1. Basic ransom threat.

[madrchsod]

2. yes......

[WatsonT]

3. Subsidies for successful companies ought to be the first thing cut during a recession

or whenever really.

[Duer 157099]

4. Why don't 98% approve of this?

I can never understand the 20-30% morons we have to put up with.

[OnlinePoker]

5. I'm a little confused by what they are refering to as subsidies

One of the examples they gave was a tax credit for drilling site preparation. To me, this sounds like a legitimate business expense similar to the building of a factory by a manufacturer. If Ford builds an auto factory somewhere, are they not allowed to deduct the cost of the construction from their gross income? Or is the article saying the government is actually giving money to the O&G industry to develop in certain areas?

[JohnWxy]

7. tax breaks for oil and gas companies get pretty complex and some require a tax expert to understand

but, in general there are costs which many accountants would consider investments which should be amortized over the life of the well, instead of written off (i.e. expensed) mostly or entirely in the year in which they were incurred (as in the case of drill site preparation). THis would be like General Motors expensing the cost of equipment it bought to manufacture cars (including the labor involved in installation and set-up), in the year they acquired the equipment.

...added: by expensing all the cost of an investment in the year of purchase it allows you to lower taxable income earlier. This saves the company money but may not be the appropriate or most legitimate way of recognizing the costs (according to the principles of accounting).

There are other tax breaks that get more abstruse.

here is some more on tax issues with regard to oil companies.

topics covered:

Enhanced Oil Recovery Credit
Deduction for Tertiary Injectants
Marginal Well Tax Credit
Passive Loss Exception for Working Interests in Oil Properties
Manufacturing Tax Deduction
Geological and Geophysical Amortization Period
Percentage Depletion Allowance


http://ncseonline.org/nle/crsreports/10Apr/R41139.pdf

[OnlinePoker]

8. I get it now...thanks.

If a well came in dry, they could expense it in that year because they wouldn't be recouping their investment, but if it came in wet, the cost of the site prep should be depreciated over the life of the well. Are most wells drilled by the big players or only bought out after the fact? I know I invest in some penny Canadian exploration companies and it seems that's the way everybody hopes it goes...you hit the big one and a player buys you out. It doesn't seem like they come into an area on their own unless there's a proven field in place.

[cutlassmama]

6. So gas isn't $10/gallon?

[Nihil]

9. K & R

JFDI Obama!

[GliderGuider]

10. Anything that increases the cost of oil is fine by me.

The higher the cost of domestic recovery becomes, the higher the price of oil goes, the more demand drops, the slower the extraction has to be, and the more attractive conservation becomes. That sounds like a win all the way around. Of course, it could simply send more money to Canada, Venezuela and Saudi Arabia, but that seems like such a small price to pay for freedom...