Do Oil Companies Really Need $4B per Year of Taxpayers’ Money? | Hacker News Reader

Do Oil Companies Really Need $4B per Year of Taxpayers’ Money?

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Whenever I see people discuss topics like this in person I usually ask them what percentage of crude oil is actually burnt?

To my surprise most people don't know where plastics come from and a myriad of other materials that are important in your daily life.

More than ~2/3 of crude is burnt in one way or another, but that remaining ~1/3 has life saving utility.

Even moving to an electric economy will still require crude oil: we need carbon composite wind turbine blades, plastic insulators on wire, feed stock to create bearing lubricants, chemicals to wash silicon to produce power inverting chips, coke to produce steel, interior plastics for cars trains buses etc.

I think it should go without saying burning hydrocarbons is not our best use of them, but this industry requires more than just outright banning/taxation, we do actually have to reach across the political bridge and begin to think intelligently.

What does any of that have to do with ending subsidies?

The fact that it underpins so much of our daily life, implying that subsidizing them helps in ensuring those functions still remain intact.

From the examples, it sure sounds like there's a lot of opportunities for them to turn a profit without all the help.

Is there any question those functions would remain intact in the oil industry? Even coal mining is not even remotely in danger of failing to meet non-energy needs for carbon.

"As a result, he thinks, the worldwide price of oil would inch up by only 1 percent."

This is total ivory tower quackery. Not even professional oil traders can predict oil prices 1 year out.

Oil fundamentally has boom and bust cycles, due to large investments in time and capital, and its demand inelasticity. That means that supply imbalances cause wild swings in price.

Supply is not a constant function and cannot be predicted with so many actors. You cannot reasonably assume players will manage the supply/demand balance. In fact, they are incentivized to allow it to swing to either extreme (longer discussion).

Long story short, you do not f* with supply sources.

The 1 percent claim is probably ceteris peribus: 1 percent greater than it would otherwise be. Not very well written though.

Even that would not result in a mere 1 percent increase. Oil inelasticity is extreme - can anyone think of a better example besides food and water?

Total world demand is ~96m bpd, and a mere 2m bpd oversupply caused the price to collapse from $100 to $26 at lowest.

The only time 1 percent might be plausible is if oil had already reached prices so high it's near the marginal benefit for consumers, or over long long periods of time (but who cares, since you would have to pay exorbitant prices in the meantime).

There are no net subsidies to the oil and gas industry. Instead they are taxed at about 45%. If a company's tax bill when you break it down is some large number minus some allowances that doesn't mean the allowances are paid out of taxpayers money, it's just how the tax is calculated.

> Natural gas is a slightly different story. It is not as much a global commodity. A decline of 3 to 4 percent in American production would raise prices by as much as 10 percent.

> In terms of carbon emissions, nothing much would happen at all, he concludes

There's no mention of fracking or other environmental damage encouraged by these subsidies

It goes without saying that these subsidies cost all Americans money & channels focus away from renewal energy.

Fracking does not exist because of subsidies. The concept itself existed since the 60's or so, but it never become economical until $100 oil (natural gas is also produced as a byproduct). Currently American production is declining year over year due to low prices, subsidy or not. Furthermore, one needs to separate the subsidies that go to the oil industry - not like it all goes to fracking companies.

Natural gas wouldn't just increase by 10%. That statement alone makes me not click on the article. Gas is still under half of global prices in the US (due to poor transport), despite this summer's runup. A decline in production, meaning supply balance, would wildly swing prices higher. It wasn't long ago that prices were $4-5 per mcf.

Yes. Natural gas is absurdly cheap in most of the US, most of the time due to the facts that (as you say) most of it is landlocked, or stranded, or some form of can't get it to market because of the pipeline network; and that Aubrey Mcclendon leased up half the damned country and frac'ed it all as fast as he could, flooding the markets. We see periodic rises when the Northeast has a cold winter, but unless LNG exporting becomes a thing we'll be in the low single digits for another five or ten years or more.

Not sure how I feel about characterizing this as a subsidy, but... while tax breaks aren't the same as subsidies, they can effectively act like subsidies in some cases. I found this list more informative than the article or even the Metcalf paper:

https://www.americanprogress.org/issues/green/report/2016/05...

The optimist in me wants to believe that our dependence on foreign oil encouraged new domestic oil production via tax policy. I don't think that nudge is warranted any longer. I'm not a fan of governments interfering in markets, but in this case, better to incentivize alternative energy and not fossil fuel.

The title of the article is incorrect. The oil companies do not get $4B a year of taxpayers' money. This isn't a transfer of money to the oil companies, this is about tax credits and tax deductions, specifically--percentage depletion, intangible drilling costs, and the manufacturing deduction.

Here's the actual article: http://i.cfr.org/content/publications/attachments/Discussion...

A few more notes. The major oil companies cannot take full advantage of percentage depletion or intangible drilling costs, only smaller companies.

The manufacturing deduction is available to all US manufacturers. If we get rid of this deduction for oil companies, we should do the same for all manufacturers.

An alternative perspective is that these tax preferences are similar to the tax preferences all businesses receive (ie. being able to deduct certain expensive, etc.). We should reform the tax code, but do so for all businesses. More here: http://instituteforenergyresearch.org/analysis/the-obama-adm...

Money is fungible so Tax credits are identical to directly handing money. Is this a good reason to directly hand them money Y/N is a separate question, but we do hand them money.

I'm not sure I agree with that in the general case. If the government lowers the top tax rate, is it "handing you money?" I can see that concept being true for targeted tax breaks to specific companies.

If they don't lower spending then they are borrowing to make up the difference, so it's handing money to people today at the cost of taking it from a slightly different group in the future.

There is a sense in which a tax credit is "identical" to handing over cash directly. But in a very similar sense, that tax credit is identical to a tax cut, and a tax cut is identical to the absence of a tax raise. Would it be accurate to say that your income tax not being sharply increased next year is "identical" to being handed a large pile of cash? Is every dollar that you are not taxed actually a gift from the government?

Or to flip it around: If we decide collectively that the correct tax rate for some activity is 20%, then that's the correct rate. Just because you might feel a better rate would be 30% (or 10%) doesn't mean that we're actually gifting the entity 10% of the revenue (or stealing 10% of their revenue). Similarly, there's no objectively correct answer to how large pieces of industrial plant should be depreciated beyond the accounting rules that Congress, the IRS, FASB, etc., have enacted. Those rules not matching what you or I would have chosen doesn't mean they're either a gift nor theft.

> a tax cut is identical to the absence of a tax raise

Wat?

Assume I earn $100 and tax is 30%: I pay $30.

Tax gets cut to 20%: I pay $20.

Tax doesn't rise: I pay $30.

30 != 20. A tax cut is a tax cut, "absence of raise" is a different thing.

> Those rules not matching what you or I would have chosen doesn't mean they're either a gift nor theft.

It doesn't mean they're not a gift either. Those rules are the result of a complex set of factors including campaign contributions, lobbying, revolving-door promises and occasional outright bribes. They are not Holy Scripture and everyone is entitled to criticise them, which includes defining this or that break with words like "gifts", "giveaways", "pork" and so on.

That's arguable only if tax rates are universal. People pretend a lower long term capital gains rate is a tax cut, but it's effectivly just handing money to a few at the cost of everyone else who needs to fund the government.

In the end spending cuts matter, tax cuts are just smoke a mirrors to mask spending as a good thing.

You went from stating the article is wrong, to saying that only smaller companies can take advantage of tax credits, threw in a red herring about all manufacturing companies, and then wrapped up with reforming the tax code.

The mental gymnastics here are stunning, and to claim tax credits and deductions aren't a direct transfer of money is like saying a credit card payment isn't, since it involves an intermediary clearing step.

At the end of the day, this IS a direct transfer of money to an industry that not only doesn't need it, but needs to be TAXED out the a-- to prevent further destruction of people's well-being.

No it is not a direct transfer. This is not talking about a transfer from taxpayers to oil companies. It's about companies keeping money they made instead of paying that money in taxes.

Disparity in tax payments is a form wealth transfer, though I will agree it's not physical. The fact that it is not a physical transfer of funds is a sleight of hand.

Edit: spelling.

Also...

https://www.google.com/search?q=subsidy&ie=utf-8&oe=utf-8

sub·si·dy -- noun: subsidy; plural noun: subsidies

1. a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

--and--

https://www.google.com/search?q=subsidy&ie=utf-8&oe=utf-8#q=...

sub·si·dy --

late Middle English: from Anglo-Norman French subsidie, from Latin subsidium ‘assistance.’

'All money is money' 50 cent

I always thought the exploration & production operations were natural resource groups, and the refineries & chemical plants were the manufacturing area.

Does Elon Musk need all the corporate welfare he gets?

Do the drug companies need Medicare to not have the right to negotiate drug prices?

Do large banks need to borrow over night at 0.25%?

The list goes on...

So do they?

I hope Mr. Galt doesn't leave us hanging here. I could really use the closure.

Who is John Galt?

I know you jest, but for folks who really don't know: https://en.wikipedia.org/wiki/John_Galt

I think you missed the joke on that one.

"Although he is not identified by name until the last third of the novel, he is the object of its often-repeated question "Who is John Galt?" and of the quest to discover the answer."

jest == joke :-)

My opinion, in the case it matters and I'm not being trolled, is that for some the corp welfare is an optimization issue for others it's a matter of survival.

these questions are off-topic.

the existence of a problem is not invalidated by the existence of several other problems.

I think it's relevant to point out that the discussion is driven by interest groups, not principle.

I think you either have a very narrow definition of on/off topic, or you don't understand the term.

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