Are American Oil Companies Subsidized?

Politicians say they want to end “subsidies” for big oil and gas producers but as they actually subsidized?

Democrats in the United States Senate plan to introduce legislation next week that would slash what they refer to as “subsidies” for oil companies. Republican leader John Boehner previously indicated that he might support such an effort. But are oil producers actually subsidized?

With gas prices rising as a result of surging demand from China and India, unrest in the Middle East and a decline in domestic production, American politicians are compelled to act. President Barack Obama urged the Justice Department to investigate the possibility of “price gouging, so we can make sure no one’s being taken advantage of at the pump,” although there is no evidence that companies are illegally profiting off higher prices.

Nevertheless, the five largest private oil companies — ExxonMobil, BP, Chevron, ConocoPhillips and Shell — recorded soaring profits last quarter. Conservative lawmakers are skeptical of singling out the most profitable of oil and gas producers however while leaving in place tax incentives for smaller companies.

Oil companies do not, in fact, receive subsidies. They are, since fairly recently, able to deduct 9 percent of their domestic production from regular tax payments and have been subject to a special tax credit for decades. This measure was originally designed during the early 1950s when American oil companies operating overseas were forced to share their profits halfway with the Saudi Arabian and Venezuelan governments.

Senate Democrats would exempt oil and gas producers from the aforementioned deduction and reduce the tax credit for royalty payments to other countries. They also plan to impose an excise tax on certain leases for the Gulf of Mexico area and provide incentives for the manufacturing and purchasing of “fuel efficient” cars. President’s Obama 2012 budget already included several billions in subsidies for renewable energy and biofuel research.