Friday, April 29, 2011

Repeal Tax Breaks for Oil Companies

Oil companies currently receive a 4 billion dollar tax break. Exxon just, on April 29, 2011, reported a 10 billion dollar profit this year alone! This is on top of year after year of multi-billion dollar profits. Exxon is joined by the other oil companies who also have huge multi-billion dollar profits, year after year. At the same time, our country is in a crisis because of the budget deficit nearing its legal limit. Does it take a rocket scientist to get the point that we should repeal the tax breaks for these companies!!!

The justification for these tax breaks was previously that there was an oil shortage and that exploration was necessary for USA security and economic interests. The argument went that, with the price of oil, certain exploration was not profitable and tax breaks were needed to encourage further necessary exploration. That might have been true when gas was about One ($1.00) Dollar per gallon. But now it is above Three ($3.00) Dollars per gallon and headed higher.

Any justification for these tax breaks has long since disappeared, and their continued existence is an abomination. Considering the dire economic problems of the USA, it is fiscal suicide to not repeal these breaks. Of course, much more will have to be done to decrease the budget deficit, and many hard choices will have to be made. But this is an easy one. Exxon and its industry do not need or deserve tax breaks, and we can not afford to give them the breaks!

I would say the same for the continued tax breaks for the richest Americans (enacted by Bush and which President Obama was forced to continue by Congressional Republicans in order to negotiate a deal (passage of necessary legislation to save the country.) They (Congressional Republicans) held the entire country hostage by refusing to allow passage of necessary and compelling legislation unless these tax breaks were extended.

Unfortunately, when it comes to cutting the budget, many items that seem like clear choices for cutting actually don't do much to reduce the overall deficit. It will take a long time and lot of hard work with painful choices. But a 4 billion dollar tax break for oil companies, that is a "no-brainer." Eliminating this one set of tax breaks will in and of itself bring a lot of revenue to the country without inflicting any pain.

Ronald Regan was given a lot of undeserved credit for his Reganomics which stressed "trickle down" economics. Give money to the rich, and they would invest and spend it and the entire country would benefit. This doesn't work, in general, and is especially harmful in our present economy with unemployment hovering between two to three times the maximum accepted rate. I state this last statistic based on the following. It has long been held that unemployment should never exceed five (5%) percent. That was accepted by all business schools, economists, and politicians. Now we have a reported unemployment rate which clearly ranges between nine (9%) percent and ten (10%) percent. Even this rate, which is about double the accepted maximum, undercounts true unemployment as it counts only people who list themselves as without any job and actively looking for employment. There are many who are underemployed, and an entire percentage of our population that has given up (like families who had two wage earners and decided that one parent would simply stop looking for a replacement job).

People are suffering. What people don't remember about Ronald Regan that his key election issue was cutting the budget deficit. That was the main thing he attacked President Carter (and I am no fan of his either.) Yet, during the Regan administration, the budget deficit actually doubled! Because the Soviet Union fell (which was pre-ordained a long time before Reagan took office) during the Regan administration, everyone forgets his fiscal failures and lauds President Regan with undeserved praise for his presidency. But the fiscal situation is critical now, and we can no longer afford to not face reality. Too high a percentage of this population were either poor already or have become poor by losing their jobs and/or assets. The deficit is out of control, and our ability to help those people is constrained.

Add to that the people who lost their entire life savings, or substantial portions thereof, with the recent financial frauds and corporate implosions like Enron, Madoff, Bear Sterns, and on and on. Many of these people were already retired, or, even if working, had their net worth eviscerated. The undeniable fact is that a significant portion of the USA population is truly poor and suffering through no fault of their own. These people need financial help, and there is virtually no money to spend to help them. We can't wait for the "illusive" riches to "trickle down". Aside from the moral and humanitarian reasons for helping these people, their financial problems adversely affects the entire country. People without income or assets can't buy products. They can't buy houses (especially with the current credit crunch.) Since they don't spend, don't earn money, they don't pay taxes. This leads to more fiscal problems. Instead of a "trickle down" effect, we are going to see a massive upwards ripple effect through the economy as the financial contagion spreads throughout the entire economy.

At a minimum, the richest companies and people should pay their fair share. I would argue we need to help those in need, but that argument is more difficult to make with the deficit so high. But at least, let's restore the strength and health of the overall US economy by bringing our deficit under control by repealing these tax breaks. If we don't, it is a clear certainty that foreign creditors will reduce their net loans to the USA, which will be a crippling blow to our economy which is already in critical condition. Interests rates will clearly go up immediately. The deficit will increase further, as USA borrowing costs increase. Next to follow will be a further credit crunch. It could easily end in a full scale depression.

It is time for decisive action. President Obama, if unconstrained by special interest groups and their Republican allies, can and will do what needs to be done. Repealing the tax breaks for oil companies is the easiest, clearest first step. The public, everyone, regardless of political affiliation, needs to contact all of their Congressmen and urge them to repeal these tax breaks and stop constraining President Obama. Otherwise, remember this clear and dire warning.

Two Days Later, The President Said, Albeit Better (he has a large staff) exactly what I said in this Blog entry. Here is what the President said trhough his spokesman,

"Good morning,

This week, as gas prices hit four dollars a gallon, oil companies like ExxonMobil announced skyrocketing profits -- while still receiving billions of dollars in taxpayer subsidies.

There's something wrong with this picture, and in this video President Obama outlines the steps we're taking to make it right:

A few weeks ago, I emailed you about rising gas prices, and I want to give you a quick update on three important steps:

Ending oil and gas subsidies. Oil companies are receiving $4 billion a year in taxpayer subsidies that don't make sense and that we can't afford. That's why President Obama has called on Democrats and Republicans in Congress to stop subsidizing the oil and gas industry so that we can afford to invest in the clean energy economy of tomorrow.

Stopping oil market fraud. Last week, Attorney General Eric Holder announced a working group focused on rooting out the cases of fraud in the oil markets that might affect gas prices (the President discussed this in his Weekly Address last Saturday).

Reducing our dependence on oil. Stepping back to look at the bigger picture, President Obama recently unveiled his Blueprint for a Secure Energy Future that set a goal of reducing our imports of foreign oil by a third in a little over a decade. To do this we have to increase our domestic energy production, reduce our demand for oil by building cleaner, more efficient vehicles, and fully utilize alternatives to oil in the transportation sector like natural gas and advanced biofuels.

These are difficult issues to tackle, and it's going to take all of us working together to move forward. For years, politicians in Washington have kicked this problem down the road, but we simply cannot afford the price of inaction any longer.


David Plouffe

Senior Advisor to the President"

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  1. What happened to the comments previously on this subject? Do they disappear after a certain amount of time? I thought the discussion was good, and you speak the gospel.

  2. Your economic position is unique. But it makes sense. It has changed my perspective.

  3. Obama is on TV (about going on Twitter) to talk about the budget deficit and economy. It is increduble that the oil companies want to keep their tax rebates!!!!

  4. You wrote your article on April. Now Wall Street and other cities all over America are being occupied because Republicans ignored you and others like you. Soon they will get the message or there will be massive social unrest!!!!

  5. You would think that repealing these tax cuts is a no brainer, given the talk about balancing the budget. But if we repeal these tax breaks, who will donate money to the Republican party?