The latest Democratic effort to raise taxes on oil and gas companies by eliminating credits and write-offs might make people feel better about hitting back at companies that charge big money for a gallon of gas, but it will do little to lower the cost, and could even lead to higher prices, energy policy experts say.
The recent spike in gas prices has reignited the battle over oil and foreign energy dependence, while both parties spring into action with bills they say will address the rising costs. Republicans are using the high prices to call for increased drilling permits for oil companies, while Democrats want to eliminate $4 billion in credits and write-offs in the tax code for oil companies while increasing government spending on alternative energy companies like wind and solar.
As for timing, President Obama called for eliminating the tax credits just before the nation’s largest oil companies reported record profits. Over the past ten years, the top five largest companies have made more than $1 trillion in profit, unwelcome news for American families that have seen gas costs cut into their budgets this year.
“When oil companies are making huge profits and you’re struggling at the pump, and we’re scouring the federal budget for spending we can afford to do without, these tax giveaways aren’t right,” Obama said during his weekly address on Saturday. “They aren’t smart. And we need to end them.”
House Democrats will force a vote on ending certain loopholes Thursday.
But what can actions from Washington to cut tax loopholes for oil companies actually do to lower gas prices now?
“In the short term, the answer is nothing,” said Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution. “It wouldn’t be the end of the world, but it would have a negative impact on the economy overall.”
Democrats last month seized upon comments from Republicans, especially House Speaker John Boehner of Ohio and House Budget Chairman Paul Ryan of Wisconsin, who appeared to voice support for ending the tax credits to oil companies. (Boehner’s spokesman quickly released a statement clarifying his remarks, saying he does not support ending the current tax policy.)
But the White House has been unclear about the reason for removing the subsidies. Obama spokesman Jay Carney said last week that the president believes that the nation “can’t afford” tax credits to oil companies, but then said that Obama would spend the money to subsidize other energy companies, not deficit reduction.
“That money should be invested in clean energy,” Carney said. “Especially when the oil and gas companies, especially the big ones, show absolutely no need for taxpayer subsidies.”
Democrats in Congress and the White House aren’t the only ones with big plans for the potential new revenue they would get from changing the tax rules for oil companies. Daniel J. Weiss, senior fellow and director of climate strategy at the liberal Center for American Progress, said the funds should be used for public transportation projects, which he said would give gas consumers more choices in the future to soften the pain of the next gas price spike.
“You’re helping people deal with high gas prices by giving them an option,” Weiss said.
But that still would do little to alleviate price concerns this summer.
In fact, the only thing the government could do immediately to lower gas prices would be to roll back the federal gas tax at the pump. But that would decimate highway funding. So scratch that idea.
According to Ebinger, changing the tax structure for oil companies could actually increase the nation’s reliance upon foreign oil, the exact opposite outcome that both Republicans and Democrats supported for decades.
“If you take [the credits] away it’s very likely that you’ll probably see a fall off in drilling activity,” Ebinger said. The oil and gas industry “would have to offset that fallen production with a greater level of imports. Which would be totally against what we say we’re taking them away for.”
While there’s no doubt that Americans will hear a lot from Washington about gas prices as prices rise even higher, don’t expect any of the proposals currently put forth by Republicans or Democrats to pass before your next trip to the gas station.