oil depletion allowance

Post image for An Overview of Oil Industry and Subsidies

Here is an excellent overview (by Robert Rapier) of taxes and the oil industry. The basic takeaways are that a simpler tax code is much preferable to what we have now, that ending these deductions without reforming the tax code will be damaging, and the oil industry’s profit margins are actually lower than many other industries. The whole thing is worth reading, but below are a few excerpts.

The biggest ‘oil company subsidy’ — amounting to $1.7 billion per year for the oil industry — is a manufacturer’s tax deduction that is explained in Section 199 of the IRS code. This is a tax credit designed to keep manufacturing in the U.S., but it isn’t limited to oil companies. It is a tax credit enjoyed by ethanol companies (have you ever heard anyone call it an ethanol subsidy?), computer companies (we are subsidizing Microsoft and Google!) and foreign companies who operate factories in the U.S.

One never hears of proposals to entirely do away with Section 199. Apparently, since this tax credit was designed as an incentive to keep manufacturing in the U.S., many would feel that eliminating it for all companies would provide less incentive for them to keep their factories in the U.S. Some of the same people apparently don’t believe this reasoning will apply with the oil industry.

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