NCPA - National Center for Policy Analysis

TAX CUT FOR HUGO?

March 3, 2008

If there's anything more dumbfounding than the House's imposition of $18 billion in taxes on oil companies, thereby guaranteeing higher prices at the pump, it's the exemption voted for Venezuela's state oil firm, says Investor's Business Daily (IBD).

Consider:

  • H.R. 5321 scrapped the tax deduction routinely given to the major integrated oil companies -- Exxon, Chevron, BP, Shell and ConocoPhillips -- that helps them explore, extract, refine and market the energy that drives our economy.
  • However, Congress ensured that its discrimination against the big oils would benefit Citgo, which happens to be owned by Venezuela's Hugo Chavez.
  • Under the bill, Citgo keeps its 6 percent deduction for U.S. domestic manufacturing -- the one the American oil companies lose -- because Citgo, technically, buys from Chavez.

Worse, the bill includes distorted incentives that will do exactly the opposite of what Congress intends:

  • By taxing big oil companies, Congress gives them less cash to develop new sources of supply that would bring these prices down.
  • America's large integrated oil companies are profitable, but they also are the biggest spenders on exploration and R&D technologies.
  • They have the greatest capacity to reach into the earth's remotest regions to produce energy; now, they'll do less of that.

Further:

  • The bill will force these five companies to pass $18 billion in costs on to buyers; energy companies, like all private enterprises, don't eat new taxes -- their consumers do, meaning higher prices at the pump.
  • Meanwhile, U.S. oil companies will have a long-term incentive to locate operations abroad, if only to match the advantage enjoyed by companies such as Citgo.

Source: Editorial, "Tax Cut For Hugo?" Investor's Business Daily, February 29, 2008.

 

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