Hacker News Reader

Comment by legitster | Hacker News Reader

Most of these are not so much "subsidies" so much as normal bookkeeping practices as employed by the oil industry. Developing a new copper mine would count as an R&D expense, but not a new oil well.

Like it or not, the oil and gas industry are pretty dang critical to supplying strategic and economic needs of the US. Punishing them while still depending on them would be incredibly silly.

Addressing climate change is first and foremost a consumption problem. Addressing it in a supply-side, trickle-down method should be self-evidently counter-productive.

View on HN

> Most of these are not so much "subsidies" so much as normal bookkeeping practices as employed by the oil industry. Developing a new copper mine would count as an R&D expense, but not a new oil well.

Which part specifically seems like "normal bookkeeping" to you?

  This bill:
  - repeals the tax credits for producing oil and gas from marginal wells and for enhanced oil recovery;
  - repeals the tax deduction for the intangible drilling and development costs of oil and gas wells;
  - repeals percentage depletion;
  - repeals the tax deduction for tertiary injectant expenses;
  - repeals the passive loss exception for working interests in oil and gas property;
  - denies the tax deduction for income attributable to domestic production activities for oil and gas activities;
  - prohibits the use of the last-in, first-out (LIFO) accounting method by major integrated oil companies;
  - limits the foreign tax credit for dual capacity taxpayers (i.e., taxpayers who are subject to a levy of a foreign country or U.S. possession and receive specific economic benefits from such country or possession); and
  - expands the definition of crude oil for purposes of the excise tax on petroleum and petroleum products to include any oil derived from a bitumen or bituminous mixture (tar sands), and any oil derived from kerogen-bearing sources (oil shale).

Nearly all of them? Except for the credits specifically for producing oil or the trade definition of crude oil.

LIFO is illegal in some countries but is acceptable under GAAP. The Oil industry is not special here.

Percentage depletion is the IRS standard for non-renewable resources. Again, oil is given the same percentage as copper: https://www.law.cornell.edu/uscode/text/26/613

Passive loss exception is also standard: https://www.irs.gov/taxtopics/tc425

The IRS maintains a nicely detailed guide on how tax deductions work: https://www.irs.gov/publications/p535 Almost no one would say a business deducting COGS would be a "subsidy".

How is that just "bookkeeping"? These are benefits that provide an actual tangible benefit to oil and gas companies. The fact that some of these subsidies are happening in other industries doesn't mean it's not a subsidy...

I mean, do you consider every tax deduction to be a subsidy? The standard deduction for all US families? Is paying anything less than 100% of income a subsidy?

The US government has a very established tax code to specifically determine what amount of money it should consider taxable and to smooth out expectations. Claiming a deduction is not inherently a subsidy. Especially if you are a business and might lose 3x as much money in a year as you make to invest in long term growth.

If Oil and Gas have unfair tax advantages, that's a problem. These seem boilerplate.

Subsidy:

> 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.

Yes, tax deductions (to businesses) are absolutely subsidies. It's the most common form of subsidization!

> Especially if you are a business and might lose 3x as much money in a year as you make to invest in long term growth.

This bill extends the amortization schedule from 24 months to 7 years. It's actually helping ease this burden. The rest of the clauses are removing what are essentially government handouts to oil and gas companies.

Unless they get a tax refund from it, it absolutely is not a sum of money granted to them.

In reality the government is simply just punishing all other businesses that can't take the same deductions.

You might as well consider it a subsidy to you if your neighbor gets mugged.

I'm not sure I see how reducing supply is 'evidently counter-productive'.

For example reducing capital available to oil/gas companies -> reduces supply -> increases price -> drives reduction in consumption / switches to alternatives.

What am I missing?

You're missing the global nature of the market. If every oil producer agreed to reduce supply it might work. But less US oil means others step in and make more refineries and dig more oil wells to meet the demand. Price isn't set based on demand only either, opec basically fixes the price. The oil price will go up for a few months and then stabilize. I mean have you seen oil prices this year? They surpassed prices in apocalyptic movies and people are still using fossil fuels just the same. Maybe tariffs on oil can help hike foreign oil prices but what politician want to be responsible for increasing gas prices? The result will be when you eventually have widespread EVs and charging stations short of supermajority popular support, you will need to beg saudi, russia,etc... to reduce supply or increase prices so people actually switch to EVs.

I for example, almost never drive but at the same time I will not get EVs unless you force me because they are unreliable for long distance, I hate queues (for charging stations) and living in apartments means either they get dozens of chargers for the complex or I have to drive somewhere and wait like an hour to charge (if I can make it to the station). So you really have to twist my arm to get anything short of a hybrid.

That said, I am only responding to your question I don't support or oppose oil subsidies since I am not informed enough on the subject

Thanks for your thoughts. If I'm understanding correctly your argument basically comes down to arguing there is a high elasticity of supply and a low elasticity of demand.

I guess I'll look into the estimates and see.

One thing I would say is that reductions in supply in one jurisdiction will compound with restrictions in other jurisdictions.

For example NZ banned new oil and gas exploration a while ago but some parties want to repeal it with the same argument as yours, someone else will sell it. But if it happens in NZ, then the US, then ... I think you reach a point where there is a non-trivial challenge to increasing supply. Then these measures will have stronger effects at increasing prices and hence reducing consumption.

Reducing supply without reducing it enough does more harm than good and reducing it enough without political backfiring is not possible. On the demand side, people mostly live viable alternatives like Tesla cars for example so that is where rhe focus should be. Cars aside, airlines are not going to convert their fleet to a yet non-existent electric commercial planes because of low supply, matter of fact, if all of US stopped extracting and refining oil, they will use it as an excuse to hike prices but in reality that will may not change prices because at the end of the day it costs what people are willing to pay for it, there will not be a global oil shortage, just a temporary logistics nightmare. On the other hand, cruise ships are by far the most notirious class of polluters. So perhaps targeted taxation of oil is what you need.

If I can compare it to something it would be trying to get a heroin addict (or even serious alcoholic) to stop using. If you succeed in cutting off all supply right away, they die. If you cut off supply locally, they will get it somewhere else where you can't help them get rehabilitated. Half measures are almost always worse than not doing anything.

I would say it isn't even a consumption problem but a policy problem. You can and many are engineering policies to wean off fossil fuels.

Reply on news.ycombinator.com