By All Means, Drop Oil Subsidies

Frequent readers of this space understand that I am hardly in favor of the government providing any advantage to one group over another when it comes to the business of business. As a result, I am in favor of doing away with any and all subsidies. I’m sad to see that Senator Thune is still defending the subsidies he likes:

South Dakota congressman John Thune was correct when he spoke for Republicans in arguing that repealing this tax break for oil companies won’t lower gasoline prices to consumers. But it would remove an egregious government intervention in free markets that misallocates resources and makes society as a whole poorer than it would be otherwise. That is an action Republicans claim to favor.

Though some see government subsidies delivered via tax breaks as somehow morally different from subsidies delivered by writing checks, economists are united in scoffing at this, and the more conservative economists are generally the greater their scorn. So to economists, a special tax break for oil works out in almost exactly the same way as a direct subsidy to a crop producer. [emphasis added]

Indeed, the only difference between these is that a politician can make them out to be different things. Practically, however, both approaches are tilting the table.

Our illustrious Senate just made back-to-back bad decisions on oil, with our own senators canceling out each other’s votes:

The bill to end the tax breaks died, 52-48, with South Dakota Democrat Tim Johnson voting for the bill and Republican John Thune opposing it.

The bill to expand oil exploration failed 42-57, with Thune in favor and Johnson opposed.

The particularly sad thing here? Johnson voted against the tax breaks and against exploration because he seems to believe that big corporations are evil and manipulative–all the things which government is not. Thune voted for the tax breaks because he’s fine with the status quo and he voted for drilling because more oil production makes sense in terms of increasing supply to lower prices.

We might just as well have stamped CANCELED on the possibility of our at-the-pump energy costs dropping into the reasonable zone any time soon.

4 thoughts on “By All Means, Drop Oil Subsidies

  1. I have never understood why it is necessary to subsidize profitable businesses. And other than a certain very few necessary defense industries, I know of no unprofitable industries that should be maintained on the taxpayer’s largesse.

    Oil companies should not be singled out for the elimination of these tax breaks. If those effective lower tax rates help to create jobs and spur industry, then *ALL* potential job-creating industries should receive the lower tax rate. Differentiating is merely a matter of government picking one well-connected group of generous donors over another less generous, less well-connected group of donors, which is to say, it is corruption, graft, and money-laundering – except it’s done by Congress.

    1. Well said. If lower taxes help industries (as we know they do) then all industries should benefit from said lowering of taxes.

      If the government picks the winners, then there really isn’t a competition, is there?

  2. I wonder how many industries besides oil are currently being subsidized. Notice even the sentence is written in passive voice. (Too often we don’t take initiative and ask what we can do for ourselves, but ask instead what the government can do for us.)

    I’m all for states having business friendly environments as long as I don’t pay for it with more taxes. Less red tape may do more to encourage business growth and innovation than any amount of government money.

    I found the following discussion of incentives vs. subsidies interesting.

    http://caps.fool.com/Blogs/tax-incentives-vs-subsidies/595397

    1. Too many industries are subsidized (directly and indirectly), but as PNR notes above, we should be consistent in taxation across industries so that all get the same advantages or lack thereof.

      Indeed, less red tape goes a long way toward providing excellent business incentives.

      Thanks for the link. It does provide some additional information about the whole tax incentives vs. subsidies matter, but I still think that such tax breaks are subsidies by a different name.

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