Are We Getting a Big Lube Job from Big Oil

                                     From fracktracker.org 

Taxpayers have been funding corporate “socialism” for years. It hardly creeps; it leaps, it demands, and it believes it is “entitled.” Some of this governmental effort is intended to incent or disincentivize certain kinds of economic, financial or environmental behavior. Other efforts are simply applying misguided economic policies – example: reduce taxes and financial burdens on the rich and they will “float all boats” (the trickledown/supply side economic theory that has never worked) – or responding to lobbying efforts of well-heeled major campaign contributors. 

Sometimes, as with the subsidy to soybean farmers facing a retaliation for China for the US tariffs placed on their goods, even an out-and-out subsidy to those damaged farmers really cannot atone for policy missteps. China simply shifted her agribusiness to other foodstuff providers, citing the political unreliability of the US as a supplier, permanently disenfranchising American soybean farmers when the subsidy payments ran out.

Our fundamental economic inequality is predicated on a system that taxes revenues but leaves massive capital gains (i.e., “wealth”) untaxed until sold. Often the rich borrow against their wealth, deduct the interest, but simply do not precipitate a taxable event by selling their assets. Wealth wins. Income earners lose. Even in cases of certain categories of revenue, giant tax benefits are accorded in response to powerful lobbying. For example, private equity fund managers, enjoying a share of the upside generated by their fund without the requirement of putting a single dime of their own capital at risk, are statutorily accorded “capital gains” tax treatment on their share of the appreciated value when it is realized in cash. Their administrative assistants may well face higher taxes rates than their very rich bosses.

Sometimes, as with other agricultural or oil and gas subsidies, tax breaks and below-market payments (on government leases and royalties) continue even when longstanding governmental policies were passed long ago in dramatically different times. The very economic structure, the business plan if you will, of entire industries is often predicated on these often arcane, decades old, practices. They are so used to these governmental benefits that they could not be profitable to shareholders without them. This includes the fossil fuel industry that not only receives royalty and tax benefits unique to that industry but is often exempt from paying the measurable cost of its contribution to pollutants (air, sea and ground) and most certainly absolved from most of the damage created by the resulting acceleration of climate change.

Often, pattern deals are simply renewed by a Congress unwilling to challenge an industry that notoriously funds political campaigns, on both sides of the aisle (see charts above), even as there are obvious mega-changes to the underlying risks. Aside from the horribles of climate change, the technology of oil exploration has profoundly dropped the risk of drilling dry holes. Not only are we returning to proven oil fields with the ability to extract what was thought to be vestigial oil and gas (with fracking) but digital ground penetrating devices can pretty well determine in advance where oil and gas reserves are lurking. 

Yet our continued accelerated depreciation tax benefits accorded to petroleum extractors and the modest royalties paid to the federal government from oil and gas resources extracted from federal lands (and offshore holdings) are reflections of a past that has long since been upgraded with significant risk reduction. Still, the economics of a less-risky oil and gas extraction industry are governed by assumptions made when such risk-reduction alternatives simply did not exist. Editorializing for the September 22nd Los Angeles Times, House Representative Katie Porter (D-CA) – pushing hard to pass the Biden infrastructure initiatives – and Public Citizen President, Robert Weissman, expound further:

“In the ‘Build Back Better’ Act, Congress has an opportunity to make oil and gas corporations play by the same rules as everyone else. The House has included common-sense oil and gas reforms in its version of the bill, and the Senate should follow suit…  Taxpayers should get a fair return from oil and gas companies that drill on publicly owned lands and waters. The House bill would make this change. Right now, these polluters pay below-market rates to extract resources that belong to all Americans.

“The federal government’s current 12.5% royalty rate for onshore drilling was established by the Mineral Leasing Act of 1920. It has not been updated for more than a century, even where technological advances have reduced the financial risk of drilling. By contrast, states are far more aggressive in ensuring their taxpayers are not ripped off — even states that tend to be friendly to fossil fuel companies — with Wyoming and Utah collecting about 17% in royalties and Texas going as high as 25%.

“Modernizing the federal royalty rate would provide huge benefits to Americans. Taxpayers lost out on more than $12 billion over the last decade because polluters weren’t paying fair market rates for drilling on public lands and waters, according to Taxpayers for Common Sense. Recovering these dollars would enable Congress to allocate more money to other programs in the bill, including those that protect the environment and make it easier for families to afford the rising costs of child care, pre-K and higher education.

“The House’s Build Back Better Act also closes a legal loophole that leaves taxpayers, instead of oil and gas companies, on the hook for cleaning up shut-down wells. Under the current requirements, the bonding coverage that polluters purchase up front to make sure environmental remediation costs are paid doesn’t come close to covering the actual cleanup costs. In effect, that means that oil and gas companies can profit off pollution, then leave taxpayers to deal with the mess they leave behind.

“In California, taxpayers paid $27 million of a $45-million bill for cleaning up a man-made island off Rincon Beach in Ventura County that was built for oil drilling in the 1950s. In Colorado, the 2019 bankruptcy of PetroShare, a small drilling firm, left about 50 wells for the state to clean up at taxpayer expense… Updating decades-old federal bonding rules will protect taxpayers from billions in liabilities down the road. The logic here should be familiar to even a first-grader: If you make a mess, you need to clean it up.” 

But the United States faces severe polarization, not from what the majority of Americans say they want from Congress but from those holding extreme positions willing to express those positions with outrageous political activism that sometimes threatens existential violence to our entire system of government. Indeed, it is these extremes that seem to determine national policies to the exclusion of the desires of most of us. From the corporate side, bolstered by the notorious 2010 Citizens United vs FEC Supreme Court decision that unleashed uncapped political contributions from mega-rich corporations, we have absolutely become a nation governed by enabled and pampered special interests.

I’m Peter Dekom, and even as I voice my skepticism that the American electorate will not tolerate accommodating special interests and violent activists, I am continually shocked about how those squeaky-if-not-dangerous wheels have usurped the vote to their benefit… at the expense of most of us.