Oil and Gas "Subsidies"

It’s absolutely ridiculous to read an article decrying” oil and gas subsidies” without actually mentioning any. But that’s exactly what happened in the article “Democrats Call for the Elimination of Billions in Oil and Gas Subsidies” in the Wall Street Journal. And the reason why the author didn’t do so is because there aren’t really any “subsidies” specific to oil and gas. Intangible drilling deductions and depletion allowances relate to small producers and exist so that otherwise uneconomic resources would be produced. Relative to green subsidies, credits, and giveaways, these seem to be barely a rounding error.

A subsidy is pecuniary aid from a government to a private industrial entity. A subsidy isn’t not paying a particular amount in taxes, which is what this author seems to be alluding to. There are some subsidies that may be available to the oil and gas industry, but they are also available to others. Note the following:

The Master Limited Partnership subsidy would result in double taxation for corporations, meaning MLP income would be taxed at the corporate level and then at the dividend level. MLPs can be found among oil and gas, real estate, 401K holders, retirees, and others.

Intangible Drilling costs means that oil and gas companies who do research are able to deduct 10% of the costs of drilling a well that produces nothing. This allows companies to explore and recover those costs because they are not assets, nor should they be considered assets.

Depletion allowances mean that oil and gas reserves in the ground are treated as a capital asset that can be written down by 15% a year, just like other companies who are allowed depreciation deductions. It must be noted that this subsidy is only available to a company who is an independent producer -- the BPs and Exxons of the world are specifically not allowed it.

As the election season draws near, it’s inevitable that the Democrats trot out the usual talking points such as “oil and gas subsidies” knowing that the general public doesn’t know much about subsidies or the industry except that they don’t like high gas prices. It’s just too bad that the author was being so blatantly disingenuous.