GOP and oil company subsidies

[Fern]

-snip-
The only one of those that could possibly be as close to a "subsidy" as it can is the "Domestic manufacturing tax deduction" which appears to be a lower tax rate on income generated at home to keep the rigs in the Gulf vs the North Sea and the African coasts.

No. It's a small, limited "deduction" based upon certain payroll expenses for companies who meet a broadly defined definition of "manufacturing".

As I said, everybody gets it, so it isn't a subsidy to oil companies.

Fern

 

[Fern]

It would probably be better to take a business or economics definition of subsidy:
http://www.businessdictionary.com/definition/subsidy.html

I am unaware of any financial analysis that does not consider most (if not all) of the things listed in that article as subsidies. If JS80 and Fern only consider direct payments to be subsidies, they are using a substantially different idea of subsidy than I've seen used in any analysis, anywhere.

To show the absurdity of the idea that only direct payments are subsidies, consider this:
If the government is giving the oil industry $100 dollars, or if it's chopping $100 off taxes that the oil industry would otherwise have to pay, the end result is that the oil company is $100 richer, and the government is $100 poorer. The idea that if they kept the tax rates the same and afterwards handed the oil industry a $100 bill that THEN it would be a subsidy is ridiculous.

Is an interest free short-term loan a subsidy?

That's what accelerated deductions are. It ain't free money, you're gonna pay it back.

Accordingly, if you wanna claim intangible drilling costs are a subsidy, it's not the amount of tax deferred (because it's only deferred). The subsidy would only be the interest costs on the amount deferred for the period of it's deferral.

Then because such interest is a normal tax deductible cost of doing business, it's only the net after-tax amount of such interest.

I.e., let's not only claim ridiculous stuff as a subsidy, but if we do find one let's overstate the shit out of it.

Fern

 

[JS80]

lol don't mess with a tax expert on...tax stuff. Thanks for all the info Fern.

 

[werepossum]

It would probably be better to take a business or economics definition of subsidy:
http://www.businessdictionary.com/definition/subsidy.html

I am unaware of any financial analysis that does not consider most (if not all) of the things listed in that article as subsidies. If JS80 and Fern only consider direct payments to be subsidies, they are using a substantially different idea of subsidy than I've seen used in any analysis, anywhere.

To show the absurdity of the idea that only direct payments are subsidies, consider this:
If the government is giving the oil industry $100 dollars, or if it's chopping $100 off taxes that the oil industry would otherwise have to pay, the end result is that the oil company is $100 richer, and the government is $100 poorer. The idea that if they kept the tax rates the same and afterwards handed the oil industry a $100 bill that THEN it would be a subsidy is ridiculous.

Still, by that definition - that government not taking money is a subsidy - then the thing we most subsidize is poor people, through the graduated progressive income tax. I can accept that a tax break can be considered a subsidy, but I think this has a lot more to do with progressives seeing a big pile of profits and thinking that these should belong to government than it does with a considered analysis of subsidies for oil companies.

Also, as Fern pointed out, to call these subsidies for oil companies implies that they are available only for oil companies. Just as allowing an elementary school teacher to write off mileage to a university to further her education is not properly called a subsidy for elementary school teachers, a tax break available to all domestic manufacturers is hardly a subsidy for oil companies. I think this is another case where progressive greed is predictably going to harm our country.

 

[fskimospy]

I'm familiar with these:

(He claims 9 subsidies, I only count 5 he lists)

1. Domestic manufacturing tax deduction.

Everybody in any type of manufacturing gets this. Heck, even software writers get this. It's not some subsidy for oil companies. It's a very broad initiative for jobs. You single out oil companies that's being punitive (as we discussed above in post #25).

2. The percentage depletion allowance: This lets oil companies deduct about 15% of the money generated from a well from its taxes. Eliminating it would save about $1 billion a year.

You can either use cost depletion:



Or, you do the % depletion (rule of thumb) and just take 15% (percentage depletion).

The government allows the latter (much like the standard mileage deduction for auto use) because it's such a PITA to actually crunch all the numbers, and a real nightmare for them to try to audit.

For anybody to say "Eliminating it would save about $1 billion a year" means they have crunched all the numbers and compared it to % depletion, I call BS on that. Nobody's done that. Eliminating the % depletion may save us some money, or then again it may not. But one thing IS sure; it's going to cost the IRS and the companies a helluva lot to crunch all the numbers.

3. The foreign tax credit.

This is not a subsidy in any way, shape or form. Anybody arguing that just doesn't know what the h3ll they're talking about.

And I can confirm that by this remark:



That's flat-out wrong. You only get a FTC for income taxes paid to foreign countries, and even that's subject to numerous limitations.

Then there's this:



Royalties are 100% deductible as a cost of business, and so are foreign taxes. He's trying to claim some differnce when there is none.

I note he says royalties "shave about 30% off a company's tax bill". Well, yeah. given a tax rate of about 30% (it's actually 35%) that's what a deduction is gonna do. But then when he refers to deducting your foreign taxes he says "it is 100% deductible" Uh, well yeah, and deducting 100% of your foreign taxes "shaves about 30% off a companies tax bill" too. He's either confused himself, or he's purposefully playing (transparent) word games to mislead people.

And the foreign tax credit, or ability to deduct them, is available to every taxpayer (even people), not just oil companies and is in no way a subsidy.

5. Intangible drilling costs: This lets the industry write off about $780 million a year for things like wages, fuel, repairs and hauling costs.All industries get to write off the costs of doing business, but they must take it over the life of an investment. The oil industry gets to take the drilling credit in the first year.

He has a point, but there is no "drilling credit". Credit != deduction; two different things.

It's a timing thing, let's you accelerate the deduction for your costs. In some cases it's a benefit, in others it's not. If it's a 'dry hole' you get to write off those costs immediately anyway. When it's determined the well becomes non-productive, you get to write them off too. If it's a long producing well, you do get a benefit.

So, he has a point here. However, this is not really any different than "R&D" that companes in other business are allowed to w/o. It used to be that was your R&D costs if in oil drilling, you had to lay the wellhead and casing before you could drill to see if you had anything. We may no longer need this with modern technology. IDK. It may be time to get rid of this, it was created many decades ago and may have outlived it's original purpose.

I don't know what the other 4 are. He claims 9, I count 5. If anybody can spot them and list them, I'll check them out.

Oh, and you should probably know what you're talking about before adopting a condescending attitude.

Fern

So two you admit are subsidies, the other ones you are saying 'other people get to do this too, but sometimes not quite as much!' I fail to see how this is a good argument that the industry isn't subsidized.

As for the royalties, what he's saying is that they are charged on revenues as opposed to income, therefore they get to deduct a larger share of the payments to foreign governments than they would otherwise, that's a subsidy.

 

[fskimospy]

Still, by that definition - that government not taking money is a subsidy - then the thing we most subsidize is poor people, through the graduated progressive income tax. I can accept that a tax break can be considered a subsidy, but I think this has a lot more to do with progressives seeing a big pile of profits and thinking that these should belong to government than it does with a considered analysis of subsidies for oil companies.

Also, as Fern pointed out, to call these subsidies for oil companies implies that they are available only for oil companies. Just as allowing an elementary school teacher to write off mileage to a university to further her education is not properly called a subsidy for elementary school teachers, a tax break available to all domestic manufacturers is hardly a subsidy for oil companies. I think this is another case where progressive greed is predictably going to harm our country.

We absolutely subsidize poor people, I mean that's the point of the progressive taxation system.

 

[fskimospy]

Is an interest free short-term loan a subsidy?

That's what accelerated deductions are. It ain't free money, you're gonna pay it back.

Accordingly, if you wanna claim intangible drilling costs are a subsidy, it's not the amount of tax deferred (because it's only deferred). The subsidy would only be the interest costs on the amount deferred for the period of it's deferral.

Then because such interest is a normal tax deductible cost of doing business, it's only the net after-tax amount of such interest.

I.e., let's not only claim ridiculous stuff as a subsidy, but if we do find one let's overstate the shit out of it.

Fern

Interest free loans are absolutely a subsidy, unless you happen to know any banks that give you money to invest for free.

 

[Fern]

So two you admit are subsidies,..

No, just one. Intangible drilling costs are a tax break for oil companies. (But only domestic wells). But other mineral extraction companies get the same thing too.

And again, it's the same as R&D, which companies in other businesses get to deduct.

the other ones you are saying 'other people get to do this too, but sometimes not quite as much!' I fail to see how this is a good argument that the industry isn't subsidized.

Where do you get the "not quite as much" from?

If the tax aspects the article lists are common to all businesses, how are these subsidies to the oil industry? As far as your inability to see the validity of the this argument, refer to to your own words:

... yes they are. If one business doesn't have to pay a tax (or a portion of a tax) that all others do, it is a subsidy. Subsidies can take tons of other forms as well, such as loan guarantees, tariffs, etc.

Since we don't have a situation where one business doesn't have to pay a tax, or part, that all others do, we don't have a subsidy.

As for the royalties, what he's saying is that they are charged on revenues as opposed to income, therefore they get to deduct a larger share of the payments to foreign governments than they would otherwise, that's a subsidy.

What?

Yes, royalties are charged on gross revenue (FMV of oil pumped from the well).

If royalties were charged on the net income, the royalty amount would be much less (net income is much less than gross revenue). However, a 'royalty' levied on net income would be reclassed under tax law as an "income tax". In tax law, we look to the nature of a thing to define it, the 'name' someone (other govs, lawyers in contracts etc) tries to give it does not prevail.

In any case, it is of no matter. Both royalties and (foreign) income tax are 100% deductible.

(The only difference is if a (foreign) payment qualifies as an "income tax" under tax law, you have the option to claim it as a Foreign Tax Credit.)

It should be abundantly clear that there is no benefit in calling something a "royalty" v. "income tax".

Fern