Big Oil’s Lying Statistics

New Report Falsely Claims Cutting Tax Loopholes for Big Oil Worsens the Federal Budget Deficit

Seth Hanlon and Daniel J. Weiss deconstruct the latest “research” funded by the oil industry defending nearly $30 billion in tax loopholes.

There are now three kinds of lies: lies, damned lies, and big oil statistics, to update the famous quip by noted 19th century British Prime Minister Benjamin Disraeli. Once again an analysis funded by the oil industry of proposals to eliminate some of their large tax breaks finds that this would be bad for the oil industry and the rest of us, too. And once again these results are sharply contradicted by the official analyses of nonpartisan government economists.

The latest biased report from an oil-industry-funded outfit is “Repealing Tax Deductions on U.S. Energy Companies Exacerbates Federal Deficit, Increases U.S. Debt” by Joseph Mason, a Professor at Louisiana State University. The report was “prepared with the support of the American Energy Alliance,” which receives oil industry funds. The study unabashedly relies on other oil-industry funded research to support its false claims.

In the report, Mason attempts to evaluate the impact of eliminating two special subsidies enjoyed by the oil industry:

  • Domestic manufacturing deductions for oil production under Section 199 of the U.S. tax code
  • The treatment of so-called “dual capacity taxpayers” who claim foreign tax credits, including oil companies

These are both arcane tax loopholes that reaped oil companies $29 billion over the past decade.

Congress and the Obama administration have their eyes on these two and other tax loopholes enjoyed by the oil industry that have been worth more than $40 billion over 10 years to help resolve our nation’s long-term budget deficit problems. So let’s unpack both of the claims by Mason to demonstrate why these loopholes are a legitimate target for policymakers amid the debate over how the raise the federal debt limit by August 2.

Section 199 is the domestic manufacturing deduction designed to help beleaguered manufacturers of all sorts by providing an incentive to keep their facilities and jobs in the United States. But beleaguered does not describe Big Oil for a number of reasons. These include the capital-intensive nature of oil production, the relative mobility of investments, and of course the level of profitability—there are vast differences between the oil industry and traditional U.S. manufacturing. Big Oil has been wildly profitable, with the five largest companies earning nearly $1 trillion in earnings over the past decade. Nonetheless, due to a concerted lobbying campaign in 2004, the oil industry got itself included in this provision intended to benefit manufacturing.

Dual capacity taxpayer rules for claiming foreign tax credits allow companies that do business abroad to reduce from their tax bill any income taxes paid to other governments. The rules are supposed to prevent oil and other companies from claiming credit for royalty payments to foreign governments, which are fees for the privilege of extracting natural resources. But the current rules have been significantly weakened so that now oil companies can reap credits on “taxes” that are, in substance, royalty payments for extracting oil.

Mason’s claims that eliminating these two oil company tax breaks would increase the federal budget deficit were debunked by multiple independent government analyses. When the Congressional Budget Office analyzed President Barack Obama’s proposed fiscal year 2012 budget beginning in October, they examined the costs of eliminating these two and several other big oil tax breaks. CBO, working with the Congressional Joint Committee on Taxation determined that:

“The other revenue proposals in the President’s budget whose effects are included in this analysis would raise revenues by $174 billion, on net, over the next 10 years [include]…. reducing tax preferences for the production of fossil fuels ($41 billion).”

An earlier Joint Committee on Taxation analysis of removal of the Section 199 tax deduction also found that it would generate federal revenue and reduce the deficit.

“The Joint Committee on Taxation estimates that removal of the [Section 199] credit for major integrated oil and gas producers would bring in $9.433 billion in federal revenue over the next eleven years.”

The U.S. Department of Treasury’s “General Explanation of the Administration’s Fiscal Year 2012 Revenue Proposals” (also known as “The Greenbook”) also determined that eliminating these provisions would generate revenue. The analysis found that eliminating Section 199 provision would generate $18.3 billion over a decade (page 147 of the report), and modifying the dual capacity rules would generate $10.8 billion through 2021 (page 146), for total savings of $29.1 billion. (The CBO and JCT also estimate that the president’s international tax proposals, including the “dual capacity taxpayer” reform, to raise a combined $133 billion over 10 years.)

The Congressional Research Service also recently concluded that ending these two (and other) tax breaks for the five largest oil companies—BP Plc, Chevron Corp., ConocoPhillips, ExxonMobil Corp., and Royal Dutch Shell Group—would raise billions of dollars of revenue.

The bottom line: Unbiased revenue estimators at four government agencies all drew the same conclusion—eliminating these two tax breaks for big oil companies would generate billions of dollars in revenue for the federal government.

How does AEA’s Mason come to a different conclusion? It may be due to his false assumptions about the Obama administration’s energy policies. He wrongly claims that it is the administration’s policy to “creat[e] a tax drag on economic growth in an attempt to engineer a social shift away from fossil fuels.” So at every decision point he incorrectly assumes that the administration’s goal is to keep oil prices high and production low.

His view completely ignores events over the past two years. On March 31, 2010, President Obama proposed to expand offshore oil drilling. In the wake of the BP oil disaster in the Gulf of Mexico, there was a temporary moratorium on deep-water drilling to ensure that other similar operations would not suffer the same devastating failures. Since new safeguards were established, 42 deep-water permits were granted.

And on June 23, the Department of Energy announced that it would sell 30 million barrels of oil from our nation’s full Strategic Petroleum Reserve in order to offset the price impact of the supply disruption due to unrest in Libya. DOE noted that “As the United States enters the months of July and August, when demand is typically highest, prices remain significantly higher than they were prior to the start of the unrest in Libya.” All of these policies are designed to maintain domestic oil production and keep gasoline affordable. In fact, domestic oil production is the highest level since 2003.

But there is a more fundamental reason why Mason’s report reaches the opposite conclusion from four government entities. Much of his analysis relies on previous claims made by Big Oil-funded organizations. In his paper, there are more than two dozen references to the views of the American Petroleum Institute, officials from specific oil companies, the Institute for Energy Research, and AEA. All of them produce conflicted research due to the source of their funding.

The American Petroleum Institute is the lobbying arm of Big Oil, so there is little surprise it would support research arguing that closing tax loopholes for big oil would harm the industry.

The American Energy Alliance and the Institute for Energy Research are both advocates for big oil companies masquerading as nonprofits. As part of its “Front Groups” project, Sourcewatch reports:

  • “The American Energy Alliance was founded in 2008 by Thomas Pyle, who previously lobbied on behalf of the National Petrochemical and Refiners Association and Koch Industries.” (Koch Industries Inc. is a major oil refiner.)
  • “On its website it lists the Institute for Energy Research (IER) as a "partner" organization and states that it is the "grassroots arm" of IER.”
  • “The Institute for Energy Research, is also led by Thomas Pyle. IER received $95,000 from ExxonMobil in 2007 and $65,000 the year before, but the organization has said that ExxonMobil is no longer a funder. IER has also received donations from …the Claude R. Lambe Charitable Foundation, which is run by executives of Koch Industries, a major company in the petroleum refining industry and one of the main funders of Americans for Prosperity…Wayne Gable, who lobbied for Koch Industries along with Pyle, is on the board of both IER and AEA.”
  • “AEA shares the same address as IER in Washington, DC.”

Clearly, both groups are linked to oil companies and their supporters who economically benefit from the retention of the very tax loopholes that Mason claims must be maintained to reduce the deficit.

Sadly, the mainstream media continues to treat AEA findings as if they are news rather than disinformation. The Wall Street Journal reported on this analysis uncritically, without noting AEA’s oil industry ties. Nor did it report that four different government agencies reached the opposite conclusion, and found that eliminating these tax breaks would reduce the budget deficit. At least The Hill mentioned that AEA was “an industry-backed group.”

Political discourse has changed markedly since Disraeli’s day. But he would certainly recognize the latest AEA report for what it is: big oil statistics that are little more than damned lies.

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy and Seth Hanlon is Director of Fiscal Policy for the Doing What Works project at the Center for American Progress.

Thanks to Noreen Nielsen, Energy Communications Director, Center for American Progress Action.

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Daniel J. Weiss

Senior Fellow

Seth Hanlon

Former Acting Vice President, Economy