Record Oil Prices, Near Record Oil Company Profits, Put Continued Oil Industry Tax Breaks Into Question In Washington

As oil prices hit record levels, and five of the largest oil companies might report near record profits up as high as 59% later this week, Washington will likely debate whether to extend billions in tax breaks to the industry in coming days. One of these tax breaks deals with the oil industry being able to write off $780 million in tax credits the first year when they open up new drilling sites while all other American businesses must depreciate the costs of new tooling over a lifetime schedule of 15 years or more of service life.

Oil companies are also given an economic incentive of a 15% tax credit for resource depletion of any drilling site they have, as another incentive to drill more and seek more oil. However, it’s not in oil’s interests to have too much oil on the market as the price would decrease if the supply pool were larger.

Oil companies also able to take part in a domestic manufacturing tax credit that is intended to encourage manufacturing to stay in the U.S. and not emigrate jobs to China or some other foreign nation. Currently, the oil industry provides on the order of 9 million jobs in the U.S., however when the news hits this week of near record oil company profits as American motorists pay around $4 or better a gallon for gas, Washington legislators as well as the White House will feel pressure to eliminate $4 billion a year in oil industry tax breaks.

The current wave of high prices is especially driving inflation as food items are either increasing in price or else downsizing by as much as 20% to cover increased oil prices. If this rate of food price increases, by year’s end it might take $300 to purchase what $200 would have bought at the beginning of the year before the latest wave of oil prices took effect.

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  • So let me get this straight … we are paying alot for a gallon of gas so lets increase costs for oil companies which will increase the price of gas …
    They still paid tax and their remaining “profits” mostly got paid out to investors who would have to pay tax on those gains …

    How does this belong on Wizbang Pop ? wrong location …

  • Please refrain from showing your economic ignorance and stick with the pop posts …

    The reason oil companies get to write off research/drilling costs in the year they incur them is because a high percentage of test wells end up never producing oil … “other” manufacturers never have a dry factory … if they build it, it produces and thus can be depreciated over many years …

    Also, none of the big US oil companies actually pump much oil out of the ground, they have no reason not to want more oil … they are refiners of oil …

    again, please stick to your nude celebrity photo posts and stay away from economics or real business, you are over your head and uninformed … basically ignorant even with Google …

  • “So let me get this straight … we are paying a lot for a gallon of gas so lets increase costs for oil companies which will increase the price of gas …”

    Of course, HarlemGhost – and in the mean time, let’s spend a couple of billion to boost BRAZILs’ oil output. So we can buy from them, instead of drilling at home, keeping jobs here, and avoid sending billions overseas.

    Obama’s got an energy plan – it just doesn’t include affordable gas for the great unwashed. Loads of money for ‘green energy research’ though – which never seems to produce much.

  • Paul Hooson

    We cover both automobile as well as business issue news here at wizbang Pop. And high gas prices are a huge topic of public discussion right now. The fact is the oil industry has been offered tax incentives and other incentives since the days of the Nixon Administrations attempts to make the U.S. self sufficient with oil, yet oil prices have continued to climb from around 40cents a gallon up to $4 a gallon now despite these tax incentives to explore for more oil.

    We don’t really deal with politics here at Wizbang Pop. You can find numerous Websites that do that sort of thing. But, we are offering an open discussion here that oil is reaching record prices despite a number of tax incentives meant to improve either improve prices or supply, so we expect Washington to soon debate many issues related to this evolving story.

    • 1) Did ANY of the major oil companies report RECORD profits this week?

      NO

      2) Why didn’t you bother to mention how much of a profit DECREASE these same oil companies reported in the first quarter of 2010?

      Because providing FACTS and CONTEXT to your readers won’t help to shape this story the way you wish.

  • Wisconsin

    They are screwing us. If gas prices are directly related to oil prices, oil company profits should stay the same or down a little as prices go up and we use less gas. They are not paying market value for the oil, they are paying for it in a bulk deal, like going to Sam’s club. it is not in their interest to keep prices low, they want them high so they can cash in. They need to pay their fair share just like everyone else and do business honestly for the good of their country that let’s them make so much money.