I find characterizing amortization schedules for high-capital-investment industries as “subsidies” very frustrating. This situation doesn’t arise because the govt is handing out freebies, but because capex on oil and gas projects is very front-loaded — it takes some time to spud in a rig, build a refinery, etc., and during that time the asset is unproductive. That’s why amortization works the way it does! It’s not the evil govt trying to prop up a supposedly failing industry …
I remember last time a looked into this is that there are really no tax subsidies that the oil and gas industry gets that are unreasonable. Absolutely every industry with high CapEx font-load their amortization.
It is the non-tax subsidies that add up. The US' military interest in the Middle East seems to be entirely based on the oil reserves in the region. How much less oil would be pumped with warring countries and unstable regimes? Also, oil companies largely don't pay for the environmental damage they do. If burning oil left a stinky purple gas instead of an invisible gas, they would be paying far, far more to stop it or get rid of it.
EDIT: actually I think you misunderstood the part about amortization entirely. It would actually INCREASE the amortization schedule from 24 months to 7 years...
This seems like an unfair characterization of the bill. Most of the things listed are not amortization:
- repeals the tax credits for producing oil and gas from marginal wells and for enhanced oil recovery;
- repeals the tax deduction for the intangible drilling and development costs of oil and gas wells;
- repeals percentage depletion;
- repeals the tax deduction for tertiary injectant expenses;
- repeals the passive loss exception for working interests in oil and gas property;
- denies the tax deduction for income attributable to domestic production activities for oil and gas activities;
- prohibits the use of the last-in, first-out (LIFO) accounting method by major integrated oil companies;
- limits the foreign tax credit for dual capacity taxpayers (i.e., taxpayers who are subject to a levy of a foreign country or U.S. possession and receive specific economic benefits from such country or possession); and
- expands the definition of crude oil for purposes of the excise tax on petroleum and petroleum products to include any oil derived from a bitumen or bituminous mixture (tar sands), and any oil derived from kerogen-bearing sources (oil shale).
Do these subsidies go exclusively to unestablished energy firms trying to enter a market that has an unreasonably high capital requirement or are they going to massive energy corporations that can front the cost?
Maybe I'm not understanding this due to the jargon but the amoritization schedule adjustment is just one part of this. It looks like there are a bunch of genuine subsidies affected here too.
A subsidy is just a benefit given by a government for public interest reasons (in the view of said government, which may or may not match yours), so I don't see why what you said would prevent these from being subsidies.
Correct me if I'm wrong, but you speak as if "subsidy" were a derogatory term, a word associated to wasteful ideas that cannot be applied to something that you consider necessary. That's a highly ideological view, not an objective view of the term.
Thought experiment: If these "amortizations schedules" didn't already exist, would there be any chance we would introduce them today, given how profitable and successful oil and gas businesses are and most certainly would still be without these subsidies?
Do you happen to know what each of the ten things mentioned are relative to the same subsidies in other industries? I am inclined to agree with you but I haven't done the due dilligence on what each thing is, why it makes sense o&g get it and where this policy is evenly applied to other industries based on, for example, high capex rather than because it is o&g explicitly. If you are willing, a sentence or two per point summary of what you discovered would really help me point out where the environmental nut jobs are being environmental nut jobs and where they have a point when talking to other people.
Why does the government need to be involved at all? Surely some bank will happily lend money to 1,000 different gas drilling operations and take a cut of the successes and eat the losses. How is getting what amounts to a loan from Big Brother any different? (Because remember, another term for "covering frontloaded costs and recovering them on an amortized schedule" is "loan"!)
Refineries are meant to last decades. Can't imagine anyone thinking, "yeah, that's a good investment right now". It would take a pretty good size financial nudge from the government to get that going.
depreciation is certainly a subsidy to capital, which is entirely unnecessary and distorts markets by upsetting the pricing mechanism. financial firms will happily provide upfront capital to any future profitable project.
More than that... does it really do anything? Making companies spread their expenses over 6 or 7 years instead of 1 to 2 doesn't seem like a big deal if they are constantly investing in new facilities.
I'm finding this argument unconvincing. Don't we have banks and insurance companies for this? Is it not the purpose of the capital market to evaluate large risky investments?
The problem is these should not be any more refineries, drill holes etc. The fossils should stay in the ground, the industry should not grow anymore int should shrink. But actually it looks like they only plan digging and pump up and let us burn every single bit just faster before climate conditions become to bad and disinformation no longer works as it did.
Which is fair, but oil and gas companies are some of the wealthiest companies around, they don't need government support to make new investments. That would be socialist; why can't they stop going to Starbucks and just pull themselves up by the bootstraps?
What is the argument against this? Honestly asking. I do know that profit margins need to exceed cost of finding, extracting and refining the oil and US's natural gas was decimated because of saudi vs russia price wars in 2020 after covid hit because prices weren't high enough which meant shutting things down. Do subsidies artificially allow a good enough profit margine to continue operations? If so is it for crude, lng,etc...? Because if it means depending more on russia and venezuela I can see that argument being good.
Also, why not get rid of farm subsidies or industry subsidies in general? Or is the point of this bill "oil bad" ? Because that would be silly, I mean sure it is bad but reducing supply just means it will be aquired elsewhere complicating the politics of switching to renewables. In other words, if the US used only its own fossil fuels it would be easier to regulate prices and such to make renewables more appealing, and russia,saudi and china getting more business means they are less motivated to reduce fossil fuel usage. But in general I agree with subsidies being a bad thing but with oil, I would rather have it in the US where we have control over the extraction and refinement process as well as distribution and ability to wind down dependence on it in a planned manner, but that doesn't mean they should be subsidized.
I just don't know what the reasons are for keeping subsidies and I'm keeping an open mind.
This is political suicide. There's no way this wouldn't directly and immediately affect gas prices at a time when they are already creating political turmoil. Not to mention strengthen Russia's hand significantly.
I would like to hear in what possible way this is a better idea (practically or politically) than just a straight carbon tax.
Not this year, and not if Dems don't control the house next year. This is also an incredibly stupid thing to be pushing right before a pivotal election.
You need no further proof that the left isn't controlled by some elite secretive singular entity. Lefty groups keep stepping on obvious rakes like this one and "defund the police" -- the underlying policies may make actual sense but there's no understanding of optics or timing whatsoever.
> "Expands the definition of crude oil for purposes of the excise tax on petroleum and petroleum products to include any oil derived from a bitumen or bituminous mixture (tar sands), and any oil derived from kerogen-bearing sources (oil shale)."
Seems like the industry got its lobbyists to write in a loophole, and that loophole should be eliminated.
If you have high "ordinary income" from salary, RSUs, NSOs, etc, you can essentially convert that ordinary income to dividends and long term capital gains using these oil & gas tax subsidies.
Let's say you invest $100k into a drilling fund. You can deduct intangible drilling costs in year 1, which is usually about 95% of your investment. So you save ($maginal_tax_rate * 95k) in year 1, and get a dividend (with extra tax break) of 10-20% per year for about 7-10 years.
When the oil slows down after 7-10 years, the fund sells the asset for 20-30% of your investment, and I believe you can realize that loss.
Note: introduced in March 2021 and hasn't made it out of committee (Ways and Means). This probably isn't going anywhere.
Here's something to consider though: energy is a matter of national security. Don't believe me? Look at what's happening in Europe right now with energy shortages as a direct result of Russia cutting off the natural gas supply.
The US isn't really suspceptible to this at the moment.
We subsidize food production for much the same reason: the US can't be starved by external forces. I have an issue with corn subsidies in particular but having enough food is a matter of national security. Just as having enough energy is. Over-producing food means severe events like droughts and floods don't mean a large number of people will starve.
If we cut anything it should be the ridiculous amount we spend on the military. We need this generation's version of the Truman Investigation Committee [1]. Some of our weapons programs are unjustifiably expensive (eg F35) and the amount of money thrown about in 2 decades of war in Iraq and Afghanistan in defense contracts and private militaries ("security companies") is disgusting.
But oil and gas? LIke it or not, this is something we need and will need for some time to come.
The general idea behind these kinds of bills is to do supply-side management of fossil production: reduce oil production is order to help with pollution/global warming. This sounds alluring but in reality, the same demand exists - it's just being directly or indirectly satisfied by imports from less scrupulous countries, usually dictatorships or theocracies. Inasmuch as there's an effect on demand, it's a very slow one.
The proper way to limit fossils is at the demand side, even if this plays less to the view of oil companies as the ultimate villains.
Price of oil goes up, demand for EVs and other non fossil energy uses goes up. Demand will only go down when you make consuming fossil fuels economically painful.
No one is going to voluntarily leave cheap energy in the ground unconsumed/non combusted. You must continue to drive down the cost of clean energy and using that clean energy for work (mobility, battery storage for grid balancing and energy arbitrage, etc).
The government could curb any behavior it wants with taxes and removing subsidies. Raise the price on gas, and the market will respond with EVs. If the tax on cigarettes were $50 then smoking would likely end immediately; I suppose a black market could emerge though.
> Raise the price on gas, and the market will respond with EVs
EVs are supply constrained. Raising gas prices when the average EV is months from delivery and tens of thousands of dollars more expensive than ICE comparables is just mean.
>I guarantee a black market would emerge immediately
FTFY
But seriously, this experiment is already playing out in NYC[0]. Every marginal % you tax a product, you push some number of consumers into the black market. At some point, the black market reaches a critical mass where the thing you're taxing might as well be banned.
This is, in fact, what is happening; in NL they're slowly but sharply increasing taxes on tobacco products. The other day they found and dismantled an "illegal" cigarrete manufacturing plant. Only illegal because it was sold untaxed, smoking itself isn't illegal yet.
Mind you, taxing and the other measures are working; the amount of people smoking has been reduced by a lot in the past few decades. But there will always be a market for tobacco and tobacco products.
What does this mean: "repeals the tax deduction for tertiary injectant expenses" ?
If I'm an oil driller and I spend $25 on "tertiary injectants" to produce $200 of oil, my real income is $175. So, the government should only be taxing me on $175.
Does this deduction mean simply that? Or is it an extra bonus deduction allowing me to claim $200 - $25 - $25 bonus = $150 income?
If it's just a normal allowed expense, then why is the government even involved in deciding which of my expenses are legit (beyond fraud levels)?
If it's a bonus expense that counts twice, then why was this even passed in the first place?
Politics aside, I'm getting a strong "chesterton's fence" feeling here - we're removing something that sounds like it shouldn't exist in either scenario, without understanding what led it to exist in the first place...
Is there any online forum for tech where people talk about tech instead of pretending like their one-sided political team is THE answer to all of the worlds problems despite both "teams" proving they are incompetent?
If we spent half as much time thinking of what we could do as individuals instead of finger pointing, we wouldn't need government intervention at all.
The democrats are completely out of touch with the people they're supposed to serve. Let's hope the dems lose both the House & Senate in November so we can regain some normalcy.
[+] [-] talentedcoin|3 years ago|reply
[+] [-] megaman821|3 years ago|reply
It is the non-tax subsidies that add up. The US' military interest in the Middle East seems to be entirely based on the oil reserves in the region. How much less oil would be pumped with warring countries and unstable regimes? Also, oil companies largely don't pay for the environmental damage they do. If burning oil left a stinky purple gas instead of an invisible gas, they would be paying far, far more to stop it or get rid of it.
[+] [-] culi|3 years ago|reply
This seems like an unfair characterization of the bill. Most of the things listed are not amortization:
[+] [-] least|3 years ago|reply
[+] [-] DubiousPusher|3 years ago|reply
[+] [-] Al-Khwarizmi|3 years ago|reply
Correct me if I'm wrong, but you speak as if "subsidy" were a derogatory term, a word associated to wasteful ideas that cannot be applied to something that you consider necessary. That's a highly ideological view, not an objective view of the term.
[+] [-] lordswork|3 years ago|reply
[+] [-] kwhitefoot|3 years ago|reply
[+] [-] patrickthebold|3 years ago|reply
[+] [-] snapplebobapple|3 years ago|reply
[+] [-] phendrenad2|3 years ago|reply
[+] [-] JustSomeNobody|3 years ago|reply
[+] [-] clairity|3 years ago|reply
[+] [-] legitster|3 years ago|reply
[+] [-] geysersam|3 years ago|reply
[+] [-] radicalbyte|3 years ago|reply
[+] [-] kubb|3 years ago|reply
[+] [-] Cryptonic|3 years ago|reply
[+] [-] Cthulhu_|3 years ago|reply
[+] [-] badrabbit|3 years ago|reply
Also, why not get rid of farm subsidies or industry subsidies in general? Or is the point of this bill "oil bad" ? Because that would be silly, I mean sure it is bad but reducing supply just means it will be aquired elsewhere complicating the politics of switching to renewables. In other words, if the US used only its own fossil fuels it would be easier to regulate prices and such to make renewables more appealing, and russia,saudi and china getting more business means they are less motivated to reduce fossil fuel usage. But in general I agree with subsidies being a bad thing but with oil, I would rather have it in the US where we have control over the extraction and refinement process as well as distribution and ability to wind down dependence on it in a planned manner, but that doesn't mean they should be subsidized.
I just don't know what the reasons are for keeping subsidies and I'm keeping an open mind.
[+] [-] bioemerl|3 years ago|reply
Yes, we need to get off of oil and gas
Yes, we don't need subsidies.
But wait for the war to be over and we know Germany won't be freezing, please.
[+] [-] tmaly|3 years ago|reply
[+] [-] legitster|3 years ago|reply
I would like to hear in what possible way this is a better idea (practically or politically) than just a straight carbon tax.
[+] [-] shreve|3 years ago|reply
[+] [-] GenerocUsername|3 years ago|reply
[+] [-] lordswork|3 years ago|reply
Why not both?
[+] [-] ChrisLomont|3 years ago|reply
[+] [-] lordswork|3 years ago|reply
[0] https://www.climatechangemakers.org/issue-briefing-ffs
[+] [-] advisedwang|3 years ago|reply
[+] [-] lordswork|3 years ago|reply
[0] https://www.climatechangemakers.org/
[1] https://www.climatechangemakers.org/issue-briefing-ffs
[+] [-] KerrAvon|3 years ago|reply
You need no further proof that the left isn't controlled by some elite secretive singular entity. Lefty groups keep stepping on obvious rakes like this one and "defund the police" -- the underlying policies may make actual sense but there's no understanding of optics or timing whatsoever.
[+] [-] pastor_bob|3 years ago|reply
[+] [-] tuckerpo|3 years ago|reply
[+] [-] photochemsyn|3 years ago|reply
> "Expands the definition of crude oil for purposes of the excise tax on petroleum and petroleum products to include any oil derived from a bitumen or bituminous mixture (tar sands), and any oil derived from kerogen-bearing sources (oil shale)."
Seems like the industry got its lobbyists to write in a loophole, and that loophole should be eliminated.
[+] [-] taxman22|3 years ago|reply
Let's say you invest $100k into a drilling fund. You can deduct intangible drilling costs in year 1, which is usually about 95% of your investment. So you save ($maginal_tax_rate * 95k) in year 1, and get a dividend (with extra tax break) of 10-20% per year for about 7-10 years.
When the oil slows down after 7-10 years, the fund sells the asset for 20-30% of your investment, and I believe you can realize that loss.
[+] [-] jmyeet|3 years ago|reply
Here's something to consider though: energy is a matter of national security. Don't believe me? Look at what's happening in Europe right now with energy shortages as a direct result of Russia cutting off the natural gas supply.
The US isn't really suspceptible to this at the moment.
We subsidize food production for much the same reason: the US can't be starved by external forces. I have an issue with corn subsidies in particular but having enough food is a matter of national security. Just as having enough energy is. Over-producing food means severe events like droughts and floods don't mean a large number of people will starve.
If we cut anything it should be the ridiculous amount we spend on the military. We need this generation's version of the Truman Investigation Committee [1]. Some of our weapons programs are unjustifiably expensive (eg F35) and the amount of money thrown about in 2 decades of war in Iraq and Afghanistan in defense contracts and private militaries ("security companies") is disgusting.
But oil and gas? LIke it or not, this is something we need and will need for some time to come.
[1]: https://en.wikipedia.org/wiki/Truman_Committee
[+] [-] yyyk|3 years ago|reply
The proper way to limit fossils is at the demand side, even if this plays less to the view of oil companies as the ultimate villains.
[+] [-] toomuchtodo|3 years ago|reply
No one is going to voluntarily leave cheap energy in the ground unconsumed/non combusted. You must continue to drive down the cost of clean energy and using that clean energy for work (mobility, battery storage for grid balancing and energy arbitrage, etc).
[+] [-] _fool|3 years ago|reply
[+] [-] Overtonwindow|3 years ago|reply
[+] [-] JumpCrisscross|3 years ago|reply
EVs are supply constrained. Raising gas prices when the average EV is months from delivery and tens of thousands of dollars more expensive than ICE comparables is just mean.
[+] [-] padobson|3 years ago|reply
FTFY
But seriously, this experiment is already playing out in NYC[0]. Every marginal % you tax a product, you push some number of consumers into the black market. At some point, the black market reaches a critical mass where the thing you're taxing might as well be banned.
[0]https://www.google.com/search?client=firefox-b-1-d&q=new+yor...
[+] [-] Cthulhu_|3 years ago|reply
This is, in fact, what is happening; in NL they're slowly but sharply increasing taxes on tobacco products. The other day they found and dismantled an "illegal" cigarrete manufacturing plant. Only illegal because it was sold untaxed, smoking itself isn't illegal yet.
Mind you, taxing and the other measures are working; the amount of people smoking has been reduced by a lot in the past few decades. But there will always be a market for tobacco and tobacco products.
[+] [-] obblekk|3 years ago|reply
If I'm an oil driller and I spend $25 on "tertiary injectants" to produce $200 of oil, my real income is $175. So, the government should only be taxing me on $175.
Does this deduction mean simply that? Or is it an extra bonus deduction allowing me to claim $200 - $25 - $25 bonus = $150 income?
If it's just a normal allowed expense, then why is the government even involved in deciding which of my expenses are legit (beyond fraud levels)?
If it's a bonus expense that counts twice, then why was this even passed in the first place?
Politics aside, I'm getting a strong "chesterton's fence" feeling here - we're removing something that sounds like it shouldn't exist in either scenario, without understanding what led it to exist in the first place...
[+] [-] linuxftw|3 years ago|reply
This is just partisan politics, there's no reason this should be here.
[+] [-] smm11|3 years ago|reply
[+] [-] sofixa|3 years ago|reply
[deleted]
[+] [-] OOIE|3 years ago|reply
If we spent half as much time thinking of what we could do as individuals instead of finger pointing, we wouldn't need government intervention at all.
[+] [-] refurb|3 years ago|reply
When I get a tax break with my 401k am I get a “subsidy”?
[+] [-] robd003|3 years ago|reply