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In addition to straining household budgets across the country, rising gas prices are causing America’s politicians to make statements that strain credibility.
At an April 17 news conference at the U.S. Capitol with other with conservative members of Congress, freshman GOP Rep. Bill Johnson of Marietta responded to President Barack Obama’s attacks on federal subsidies for oil companies with an attack of his own. After observing that Obama did not take care of this issue when Democrats controlled both houses of Congress, Johnson went further.
"He didn’t do anything to try to stop those subsidies when he could have gotten it through," said Johnson. "That’s because they don’t exist. This is political rhetoric. It is what you would expect coming from the White House and this president in a campaign year like this."
That got PolitiFact Ohio’s attention.
We sought more information on Johnson’s claim that the subsidies attacked by Obama and numerous groups don’t exist. His office supplied a statement, in which he said "a subsidy is a direct payment from the government to a company from the U.S. Treasury," which oil companies don’t receive. The tax code permits "all companies and individuals to deduct certain business expenses, and oil companies are no different in this regard," Johnson said.
The same argument has been made by the American Petroleum Institute, as well as other GOP politicians.
Their argument basically rests on two points. First, oil industry tax breaks are no different from those received by other businesses. Secondly, it’s incorrect to classify those tax breaks as subsidies.
We’ll look at each one.
Obama’s proposed FY 2013 budget called for removing a handful of "tax provisions that preferentially benefit fossil fuel production," and estimated that doing so would yield more than $4 billion a year.
Specifically, it called for repealing tax provisions for "expensing intangible drilling costs," a "deduction for tertiary injectants," an "exception to passive loss limitations for working interests in oil and natural gas properties, "a percentage depletion for oil and natural gas wells," and a "domestic manufacturing tax deduction for oil and natural gas companies." It also called for increasing "the geological and geophysical amortization period for independent producers to seven years." Those seem directly targeted to the oil and gas industry, and not applicable to other businesses. When Obama’s budget was released, the American Petroleum Institute’s president said those provisions unfairly targeted his industry and would diminish job creation.
"Instead of advancing constructive pro-development policies, his budget plan calls for increased taxes on America’s oil and natural gas industry," API president Jack Gerard said Feb. 13.
The nonpartisan taxpayer watchdog group Taxpayers for Common Sense estimates the U.S. tax code currently contains about $5 billion in yearly tax breaks that are exclusive to the oil and gas industry, and says the industry also benefits from an extra $5.5 billion worth of general business tax provisions that companies in other industries also claim.
"The oil and gas industry often argues the tax breaks they take advantage of are available to every industry," the group’s vice president, Steve Ellis, said in an email. "But obviously other industries can’t realistically claim the Intangible Drilling Costs tax credit (created in 1918) or the Expensing of Tertiary Injectants tax credit or the Volumetric Ethanol Excise Tax Credit for blending ethanol into fuel."
The American Petroleum Institute likens its drilling cost tax credit to research and development tax deductions available to other industries, and says the costs of the tertiary injectants put into older reservoirs to help continue production "are expensed similar to materials and supplies because they are generally used up in the production process."
As for the second point, Johnson and others say that a subsidy is a direct payment of money to a person or business by American taxpayers, and the term shouldn’t be applied to tax credits.
Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics, argued that point in a December column in the conservative Washington Times, writing that oil companies receive "business deductions" rather than subsidies, and the two "are as different as apples and oranges."
"The semantically accurate way to describe legislation that would eliminate the manufacturing deduction or curtail the foreign tax credit for oil and gas companies is straightforward: the imposition of tax discrimination, not the removal of federal subsidies," Hufbauer wrote. "Because most Americans agree that tax discrimination is bad policy - Uncle Sam shouldn’t be picking winners and losers through the tax code -- accurate language would diminish these proposals."
Merriam Webster describes a subsidy as "a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public." Definition of the term "subsidy" became a focus of U.S. Senate debate in March, when legislators nixed Obama’s effort to end the disputed oil and gas industry tax breaks. Republicans argued the tax breaks weren’t subsidies. Democrats like Ohio Sen. Sherrod Brown applied that term to the tax breaks under discussion.
While use of the word "subsidy" to describe tax credits for the energy industry seems most popular among Democrats, plenty of Republicans have used that phrasing, too.
When Rep. Jim Jordan of Ohio claimed in January that federal, state and local governments have subsidized the production of the Chevrolet Volt "to the tune of estimates between $50,000 and $250,000 per vehicle sold," his subsidy tally included tax breaks. When Tennessee Sen. Lamar Alexander delivered a February 15 speech to oppose federal tax breaks for wind power, he called them subsidies.
A March 2012 Congressional Budget Office report on federal financial support for energy development and production also refers to energy tax preferences as "subsidies."
Ellis, of Taxpayers for Common Sense, says tax breaks are subsidies because they subsidize the bottom line of recipients. He says government subsidies encourage taxpayer behavior that might not otherwise occur.
So where does that leave Johnson’s claim?
Both Democrats and Republicans have widely applied the term "subsidy" to tax breaks. We think it’s semantic hair-splitting to argue the term is being improperly applied. While it may not involve the sending of a U.S. Treasury check to a company, a tax break has the same practical impact, allowing a company to hold onto money it might otherwise pay in taxes.
Defenders of the oil industry tax breaks, like Hufbauer, may argue that "Uncle Sam shouldn’t be picking winners and losers through the tax code," but that practice is undeniably widespread. A federal tax deduction for mortgage interest subsidizes homeownership. A recently expired ethanol tax credit subsidized corn growers. And the tax breaks that Obama targeted for things like "drilling costs" and "tertiary injectants" specifically subsidize the oil industry. If they did not, why would the industry’s trade association vigorously protest their proposed elimination?
We won’t address whether eliminating the oil industry tax breaks is good or bad policy. But the fact is those tax breaks do exist and they benefit the oil industry.
But Johnson arguing they are not subsidies amounts to semantic gymnastics that ignores usage commonplace among his colleagues in Washington.
On the Truth-O-Meter, Johnson’s claim rates False.
Rep. Bill Johnson, news conference at the U.S. Capitol, April 17, 2012
Emails with Bill Johnson spokesman Michael Tadeo, April 24 to 26
President Barack Obama, weekly address, Ending Subsidies for Big Oil Companies, March 17, 2012
Center for American Progress, Big Oil’s Misbegotten Tax Gusher, May 5, 2011
American Petroleum Institute, API responds to President Obama’s call to raise oil and natural gas industry taxes, March 1, 2012
American Petroleum Institute, Why Oil & Gas Tax Treatments are not Unique or "Subsidies," April 2011
American Petroleum Institute, Press briefing teleconference on administration budget and taxes on industry, Feb. 13, 2012
Rep. Jim Renacci, speech to the Stark County Chamber of Commerce, April 10, 2012
Office of Management and Budget, Fiscal Year 2013 Budget of the U.S. Government, Cuts, Consolidations and Savings
Emails with Renacci spokesman Shawn Ryan, May 1, 2012
Emails and interview with Taxpayers for Common Sense vice president Steve Ellis, May 1, 2012
The Washington Times, Hufbauer: Debunking the big-oil subsidy myth, December 7, 2011
Merriam-Webster online dictionary, definition of "subsidy," accessed May 1, 2012
Greenwire, Unable to even define ‘subsidy,’ a gridlocked Senate shoots down energy tax bill, March 29, 2012
Congressional Record - Senate , page S2207, March 29, 2012
Sen. Lamar Alexander, press release, "Alexander: It’s time to end big wind’s big loophole," Feb. 15, 2012
Congressional Budget Office, Federal Financial Support for the Development and Production of Fuels and Energy Technologies, March 2012
PolitiFact Ohio, Jim Jordan says subsidy for the Volt averages out to as much as $250,000 per car, Jan. 31, 2012
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