WASHINGTON, DC— A new report by the U.S. Congress Joint Economic Committee (JEC) finds that eliminating or modifying several tax breaks currently benefiting the major integrated oil companies will reduce the deficit by $21 billion over ten years and encourage investments in alternative energy and energy efficiency.
The report, “End Tax Breaks For Big Oil: Reduce the Federal Deficit Without Increasing Prices at the Pump,” further shows that the repeal of the tax breaks will not affect oil and gas production decisions in the near term and will have little or no impact on consumer energy prices in the immediate future.
“This new JEC report makes clear that there are ways to bring down the deficit without harming our economic recovery,” said JEC Chairman Bob Casey (D-PA). “By repealing unnecessary tax breaks to the major integrated oil companies, we can reduce the deficit by more than $20 billion and speed the move to a clean energy economy without impacting prices at the pump.”
The price for crude oil, which is the key driver of gasoline prices, is determined in a global market based on global supply and demand. While the United States consumes nearly a quarter of all oil consumed worldwide, it has only 2 percent of the world’s proven oil reserves. The report finds, therefore, that increases in U.S. oil production are unlikely to lead to lower crude oil prices or gasoline prices.
The report also notes that the profits of oil companies are highly correlated with crude oil prices. In 2010, as the economy recovered, the price of oil rose and the five major integrated oil companies increased their profits by an average of 21 percent.
“With the price of oil near $100 a barrel, it makes no sense to continue tax breaks to these profit-making machines. Our country can’t afford it and the giant oil companies don’t need it,” Casey continued. “While families face $4 a gallon gas prices, oil companies are raking in massive profits, boosted by tax incentives paid for by taxpayers. That’s wrong and we need to fix it.”
Casey also emphasized the need to continue to pursue cleaner energy production, saying, “The JEC report reminds us yet again of the need to diversify our energy resources, developing cleaner alternatives such as the natural gas available through the development of the Marcellus Shale.”
The report concludes that eliminating the tax provisions is unlikely to have any impact on natural gas prices, as more and more natural gas is produced through continued exploration and development of shale gas resources, such as the Marcellus Shale. Shale gas is expected to increase from 16 percent of total U.S. gas production in 2009 to nearly half by 2035.
The tax provisions discussed in the report include: (1) eliminating the ability to claim the domestic manufacturing deduction (Section 199) against income derived from the production of oil and gas; (2) repealing expensing of intangible drilling costs; (3) repealing expensing of costs of tertiary injectants used as part of a tertiary recovery method; and (4) modifying the foreign tax credit rules for dual capacity earners.
The report was prepared by the staff of the Chairman of the JEC.