There are some myths that just won’t die.
The idea that we only use 10 percent of our brain, that searing meat seals in juices, that camels store water in their humps, or that Einstein flunked math, are all tall tales that society cannot seem to let go of regardless of the evidence in front of them.
But while many of these widely-held myths are simply harmless old wives tales that at worse lead us to say, over-char our steaks, there is one that threatens to do some serious harm. And that’s the oft-cited myth that oil companies receive subsidies.
While this particular legend doesn’t receive the pop-culture treatment of many of the others on our list, Democrats have been increasingly spouting it off as fact in recent years.
Just yesterday at a campaign event in Nashua, New Hampshire Obama said, “You can keep subsidizing a fossil fuel that’s been getting taxpayer dollars for a century, or you can place your bets on a clean energy future.
It’s a theme that was carried over from his most recent State of the Union. “We need to get behind [green] innovation. And to help pay for it, I’m asking Congress to eliminate billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own,” Obama said to laughs.
But make no mistake, this is no laughing matter. By maliciously attacking oil and natural gas companies, the cheapest forms of energy, while pumping money into so-called green technologies, the pain at the pump will only get worse.
The two biggest “subsidies” that Democrats often refer to when speaking about oil and gas companies are the domestic manufacturing deduction and the “dual capacity” protections. Let’s take a look at these in turn.
Section 199 of the Tax Code is a deduction created in 2004 that is available to all manufacturers who make things in the United States. Everyone from Hollywood studies to the New York Times, from Coca-Cola to Microsoft, receives the tax credit. In fact, every other industry is eligible for a 9 percent deduction, but because of the generally reviled nature of oil companies, they only receive a 6 percent deduction.
Likewise, the dual capacity credit is a provision of the tax code that allows all America-based companies (oil and natural gas included) that are operating overseas to receive a credit for the taxes they’ve already paid to foreign governments in determining what they owe Washington. The goal is to prevent double taxation and to mitigate the harmful effects of having the highest corporate tax rate in the industrialized world. Again, it’s not an industry-specific subsidy, it’s an intentional feature of our tax code.
In their justification for singling out oil companies among other domestic manufacturers (which they profess to love) Democrats often point to the profits of the industry. But the fact is that the oil and natural gas industry already pays one of the highest effective tax rates of any industry. They currently labor under a 41.4 percent rate, while the average of other S&P industries is 26.5 percent.
By comparison, Apple the much-beloved tech company just recorded the second most profitable quarter ever, with $46 billion in revenues and $13.06 billion in profits. Yet you don’t hear any politicians attempting to increase their estimated 15 percent worldwide effective tax rate. And yet it’s not as if Apple have been choirboys, with numerous reports of a poor human rights record in their overseas production facilities. But Washington turns a blind eye because oil companies make for much better villains than popular technology companies.
Even if we did accept that oil companies are receiving $4 billion in “subsidies” this year, it would pale in comparison to the amount Washington is spending on propping up “green” technologies.
According to the Institute for Energy Research renewable energy companies received $14.7 billion in 2010. Of those, wind related technologies received nearly $5 billion, solar received $1.13 billion, and biofuels received $6.2 billion.
Those amounts become even more absurd when you consider that oil and natural gas contribute a much greater percentage of the nation’s energy. For instance, solar receives more than $775 in taxpayer money for every megawatt hour of energy created, while oil and natural gas receive $0.64 per megawatt hour.
So let’s put this myth that oil and natural gas are being subsidized beyond belief to rest for good. If America is really looking for savings it should begin by getting out of the energy business entirely – green technologies included.