Politics no excuse for misleading on subsidies

American politics has a long and colorful history of hyperbole and exaggeration. Even still, the fact we are entering the thick of another campaign season shouldn’t give license to politicians to stretch the bounds of truth too far.

That’s why it’s so disappointing to see campaign advertising from the president of the United States single out a leading American company with a claim that doesn’t hold water.

At issue is President Obama’s most recent campaign ad, which claims he will “eliminate oil subsidies” and takes express aim at ExxonMobil. That spot follows on a Rose Garden event in March where the president pointedly mentioned ExxonMobil while criticizing the oil and gas industry for taking “billions a year in taxpayer subsidies.”

It is bad enough that these attacks unfairly target one company. The real problem, though, is that the charge on which they’re based isn’t true, and no amount of repeating it can change that.

In late June the Washington Post awarded the Obama campaign “Four Pinocchios” for an ad criticizing Mitt Romney for allegedly outsourcing jobs while running Bain Capital. One can be excused for thinking the president’s advisers would be extra careful in subsequent ads to make sure their claims could be backed up. Unfortunately that’s not the case when it comes to the oil and gas industry.

I’ve used this space before to set the record straight on claims of industry subsidies. Nevertheless, I feel compelled to cover this ground again.

The simple fact is that neither ExxonMobil nor the U.S. oil and gas industry as a whole receives subsidies.

What the president refers to as subsidies for companies like ExxonMobil are actually legitimate tax provisions that apply to many organizations and many industries across the board.

The best example of so-called industry subsidies – and the one that critics usually cite first – is the manufacturing income deduction under section 199 of the tax code.

This is no subsidy at all; it’s a deduction available to virtually every American manufacturer – whether you refine oil into gasoline or make cars or toasters or microprocessors or even if you produce Hollywood movies. In fact, the scope of this deduction is actually less for oil and gas producers than for other manufacturers.

That alone gives lie to the notion it is a special benefit extended to the oil and gas industry by politically connected friends in Washington. And to entirely bar the largest oil companies from taking advantage of the 199 deduction available to other manufacturers amounts to nakedly punitive political punishment.

And the other supposed subsidies? A recent Wall Street Journal editorial noted they are merely “deductions from taxes that cover the cost of doing business and earning income to tax in the first place.” And like the 199 deduction, most are available to other manufacturers in other industries.

The fact is, U.S. oil and gas companies like ExxonMobil are actually making a significant economic contribution at a time when the country is still recovering from the ill effects of a multi-year recession.

Consider that oil and gas companies created 9 percent of new U.S. jobs in 2011. Or that for every new job directly related to oil and gas extraction, three more were created in industries that supply energy companies with goods and services. On top of that, the industry pays the federal government approximately $86 million a day – or about $31 billion a year – in rents, royalties, bonuses and corporate taxes.

The overall contribution of the U.S. energy industry has been one of the few economic bright spots over the last four years, and arguably has prevented a recession from developing into a depression.

It also goes a long way to explaining why the Progressive Policy Institute recently honored ExxonMobil and other oil and gas companies as “Investment Heroes” for betting on America’s future with significant capital investment.

It’s no surprise that candidates play politics with hard-hitting campaign advertising during an election season. But an ad that singles out one company by name for unfair and misleading attack is a poor contribution to America’s great political tradition.


5 Comments

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  1. Richard Griffith says:

    Hi Ken, Mostly I enjoy your critical thinking about oil and gas issues. But your discussion about tax credits, subsidies and the like is not a level discussion. You are biased toward your employer, which is understandable. An accepted unbiased source is needed and the Christian Science Monitor is recognized as that kind of resource. Here is the link to their discussion on th subsidy issue:
    http://www.csmonitor.com/USA/Politics/2011/0309/Budget-hawks-Does-US-need-to-give-gas-and-oil-companies-41-billion-a-year

    Remember that individual states give tax breaks and subsidies to the oil, gas and coal industries in their state too. My contention is that renewable energy startups need the money much more than the established companies and this is not happening. What do you think about renewable energy sources that might possibly provide for us when oil is gone. the most difficult problem is transportation fuels. Natural gas, however plentiful, can not meet transportation needs for fuel.

    • Phillip Hawley says:

      Having looked carefully at the Christian Science article, it seems again that the confusion in some peoples minds is simply about what is a subsidy and what is a legitimate deduction from income for tax purposes. Perhaps a clear and simple definition of these terms would help.

  2. Kenneth Bulls says:

    I think that we indeed need to grow up as a nation and recognize the vast resources our country has been endowed with,that coal,oil, natural gas and nuclear are for the 21st century not the ash heap of history.
    Why shouldn’t we sell our excess fuels on the world market and make hard currency to deal with our governmental financial problem’s,instead of only trying to pretend we can be self sufficient with Solyndra’s and other make believe industries.We should not be ashamed to create wealth with the hand we were dealt within our borders as some are.
    Hopefully,some common sense will return with November’ s elections on the state and federal level.

  3. TAP Management says:

    The Obama Administration has fallen under scrutiny for preventing oil and natural gas production projects in the United States. Nevertheless, domestic oil and natural gas production has dramatically increased in recent years despite little federal support and a lack of drilling on federal lands or waters. However, the Interior Department recently reported that energy development on federal lands contributed $275 billion to the economy in 2011 and created 1.5 million jobs.

    TAP Management 5125276000 and other domestic energy suppliers are anticipating a more favorable, long-term energy solution that will provide Americans with more affordable energy and create thousands of jobs. A realistic approach to our growing energy demands, combined with a shared vision from our political officials, will make the United States one step closer to achieving energy independence.

  4. Bill Kilgore says:

    Mr. Cohen,

    On January 27, 2012 you posted a statement delineating the breakdown of specific costs associated with producing and selling a gallon of gasoline. I had a thought last night that posters might be placed on each gas pump that shows that breakdown. Ideally, they should be computerized, allowing for immediate updates, and placed on the overhead sign at each gas station. We might be able to deduct the taxes also.

    Bill Kilgore

  5. Richard Griffith says:

    Hi Ken, Mostly I enjoy your critical thinking about oil and gas issues. But your discussion about tax credits, subsidies and the like is not a level discussion. You are biased toward your employer, which is understandable. An accepted unbiased source is needed and the Christian Science Monitor is recognized as that kind of resource. Here is the link to their discussion on th subsidy issue:
    http://www.csmonitor.com/USA/Politics/2011/0309/Budget-hawks-Does-US-need-to-give-gas-and-oil-companies-41-billion-a-year

    Remember that individual states give tax breaks and subsidies to the oil, gas and coal industries in their state too. My contention is that renewable energy startups need the money much more than the established companies and this is not happening. What do you think about renewable energy sources that might possibly provide for us when oil is gone. the most difficult problem is transportation fuels. Natural gas, however plentiful, can not meet transportation needs for fuel.

    • Phillip Hawley says:

      Having looked carefully at the Christian Science article, it seems again that the confusion in some peoples minds is simply about what is a subsidy and what is a legitimate deduction from income for tax purposes. Perhaps a clear and simple definition of these terms would help.

  6. Kenneth Bulls says:

    I think that we indeed need to grow up as a nation and recognize the vast resources our country has been endowed with,that coal,oil, natural gas and nuclear are for the 21st century not the ash heap of history.
    Why shouldn’t we sell our excess fuels on the world market and make hard currency to deal with our governmental financial problem’s,instead of only trying to pretend we can be self sufficient with Solyndra’s and other make believe industries.We should not be ashamed to create wealth with the hand we were dealt within our borders as some are.
    Hopefully,some common sense will return with November’ s elections on the state and federal level.

  7. TAP Management says:

    The Obama Administration has fallen under scrutiny for preventing oil and natural gas production projects in the United States. Nevertheless, domestic oil and natural gas production has dramatically increased in recent years despite little federal support and a lack of drilling on federal lands or waters. However, the Interior Department recently reported that energy development on federal lands contributed $275 billion to the economy in 2011 and created 1.5 million jobs.

    TAP Management 5125276000 and other domestic energy suppliers are anticipating a more favorable, long-term energy solution that will provide Americans with more affordable energy and create thousands of jobs. A realistic approach to our growing energy demands, combined with a shared vision from our political officials, will make the United States one step closer to achieving energy independence.