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Should the U.S. End Federal Subsidies and Tax Breaks for Oil Companies?

Reinvest Oil Subsidy Dollars in Clean Energy and Job Creation


Published May 2, 2011

One year after the Deepwater Horizon oil rig exploded and caught fire in the Gulf of Mexico, killing 11 workers and causing the worst accidental marine oil spill in world history, BP posted first-quarter profits of $7.1 billion in 2011—a 17-percent increase over the same quarter in 2010, although 2 percent short of the figure analysts had predicted.

Exxon and Shell did even better. Exxon posted first-quarter profits of $10.65 billion—a 69-percent increase—and Shell's profits rose 33 percent to $11.56 billion.

Oil Subsidies No Longer Needed
Yet with oil companies pocketing record profits, and consumers paying some of the highest prices ever seen for gasoline, Congress continues to provide billions of dollars in taxpayer-financed government subsidies and tax breaks for oil companies while debating how to trim the federal deficit by cutting environmental protections and services for women, children, seniors and the poor.

Republican Budget Proposal Preserves Oil Subsidies
The 2012 budget proposal set forth by U.S. Rep. Paul Ryan, for example, would preserve $40 billion in federal oil-company subsidies over the next 10 years ($4 billion annually) while cutting $389 billion from Medicare for seniors, $735 billion in Medicaid, which provides medical services to Americans too poor to afford private health insurance, and $923 billion in discretionary spending on domestic programs.

The difference is that seniors and poor people need the help; oil companies don't.

Oil Subsidies: A Better Use for the Money
Although holding back $4 billion a year, or $40 billion over 10 years, from the oil companies wouldn't eliminate the trillion-dollar federal deficit, it would be a start. More to the point, investing that $40 billion in clean energy, job creation, and revitalizing the economy would be a better use of tax dollars, and benefit taxpayers far more, than continuing to hand the money to oil companies.

Oil Subsidies Then; Oil Subsidies Now
Congress started providing federal subsidies to oil companies back when the oil industry was a young and high-risk business, technology was imprecise, and subsidies helped to offset the cost of dry wells and failed exploration. Back then, the subsidies made sense.

Today, federal subsidies are an ongoing windfall that inflate oil companies' already enormous profits at taxpayer expense—the same taxpayers who are creating most of those profits by spending their hard-earned dollars to fill their gas tanks, heat their homes, and purchase other petroleum-based products.

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