BY REBECCA LEBER ON JANUARY 9, 2013 AT 2:23 PM |

Despite ranking among the most profitable corporations in the world, Big Oil benefits from $4 billion in annual tax breaks. It fights to maintain them through aggressive political donations, lobbying, and heavy ad spending, but also employs another tactic: Pretending these tax breaks don’t exist.
 
“The oil and gas industry gets no subsidies, zero, nothing,” API President Jack Gerard said on Tuesday. “We get cost-recovery benefits, much like other industries. You can go down the road of allowing economic activity, generating hundreds of billions to the government, or you can take the alternative route by trying to extract new revenue from industry by increasing their cost to do business.”

Tax deductions are indeed subsidies, as API admitted in a document that labeled “subsidies for alternative fuels” as “preferential tax treatment.” And the oil industry’s $4 billion preferential treatment is written permanently into the tax code. These include:

  • Percentage depletion allowance: lets companies deduct the costs of an oil or gas well, about 15 percent, from its taxes.
  • Domestic manufacturing tax deduction: Allows oil companies to collect $1.8 billion each year, even though there are vast differences between oil and traditional U.S. manufacturing. It is a benefit that was never intended for them, according to Sen. Bob Corker, a Tennessee Republican, who said Congress included oil producers “almost inadvertently.”
  • The foreign tax credit: Oil companies overwhelmingly fall into the category of companies that can claim credits for payments to foreign governments.
  • Expensing intangible drilling costs: For over a century, oil companies have written off wages, fuel, repairs, and hauling costs.

ExxonMobil, Chevron, and ConocoPhillips have paid federal tax rates well below the 35 percent top corporate rate, a far cry from paying “more than our fair share”. ExxonMobil, for instance, paid a 13 percent tax rate in 2011, after drilling deductions and benefits, and 14 percent on average between 2008 and 2010.

The record-high gas prices of 2012 reinforce the decades of data showing domestic drilling has very little impact on gas prices. At the same time, the Big Five companies are on track to collect more than $100 billion profit this year.