Baucus Not Ending Oil Subsidies but Implementing Tax Hikes

Mike Brownfield / May 04, 2011

Senator Max Baucus (D–MT) isn’t shy about picking winners and losers.

Last December, he led the charge to keep in place a subsidy of $6 billion per year to the ethanol industry. Now he’s picking the oil and gas industry as losers by proposing to eliminate subsidies for big oil and using the increased revenue to subsidize a different set of political winners. Baucus would provide even more incentives for more fuel efficient vehicles and alternative energy fueling stations.

But what Senator Baucus labels as an oil and gas subsidy is not an oil and gas subsidy. Baucus proposes removing the tax deduction under Internal Revenue Code Section 199 for oil and gas and reducing a tax credit for royalty payments U.S. companies pay to foreign governments. These policies are broadly available and are not specific tax breaks for oil gas producers. Repealing or reducing these tax deductions for the oil and gas industry would be a punitive, targeted tax hike that would likely reduce supplies and increase prices in the years ahead by discouraging investment in domestic production of oil and natural gas. (more…)