Center for American Progress

Ryan Budget Pads Big Oil’s Pockets with Senseless Subsidies

Ryan Budget Pads Big Oil’s Pockets with Senseless Subsidies

Spending Plan Keeps $40 Billion in Tax Breaks for Wealthiest Companies

Rep. Paul Ryan’s proposal maintains subsidies for oil companies making a killing off high gas prices while cutting investments for cleaner fuels less susceptible to price shocks, writes Daniel J. Weiss.

The sign for the ExxonMobil Torrance Refinery in Torrance, California, is shown. It appears that House Budget Committee Chairman Paul Ryan’s (R-WI) proposed  FY 2013 budget resolution would retain a decade’s worth of oil tax breaks worth $40 billion for companies such as Exxon. (AP/Reed Saxon)
The sign for the ExxonMobil Torrance Refinery in Torrance, California, is shown. It appears that House Budget Committee Chairman Paul Ryan’s (R-WI) proposed FY 2013 budget resolution would retain a decade’s worth of oil tax breaks worth $40 billion for companies such as Exxon. (AP/Reed Saxon)

The latest House Republican budget plan asks low-income and middle-class Americans to shoulder the entire burden of deficit reduction while simultaneously delivering massive tax breaks to the richest 1 percent and preserving huge giveaways to Big Oil. It’s a recipe for repeating the mistakes of the Bush administration, during which middle-class incomes stagnated and only the privileged few enjoyed enormous gains.

Each component of the new House Republican budget threatens the middle class while doing nothing to add jobs or grow our economy. It ends the guarantee of decent insurance for senior citizens, breaking Medicare’s bedrock promise. It slashes investments in education, infrastructure, and basic research, all of which are key drivers of economic growth and mobility. And it cuts taxes for those at the top, asking the middle class to pick up the tab. It’s a budget designed to benefit the top 1 percent at everyone else’s expense.

American families have been plagued by higher oil and gasoline prices over the past several years despite a significant increase in domestic oil production and rigs, and decline in consumption. But while high prices threaten the economy and family budgets, they enrich American oil companies with huge profits. Yet it appears that House Budget Committee Chairman Paul Ryan’s (R-WI) proposed FY 2013 budget resolution would retain a decade’s worth of oil tax breaks worth $40 billion. And his budget would cut billions of dollars from investments to develop alternative fuels and clean energy technologies that would serve as substitutes for oil and help protect middle-class families from volatile energy prices as well as create jobs. In short, the Ryan budget compounds the cost of high oil and gasoline prices on the middle class.

Americans continue to pay more at the pump with little end in sight. Gasoline prices rose by 53 cents since January 2—a 16 percent increase. Average weekly gasoline purchases this year have been some of the fewest in 11 years, but families still spent $3.7 million more on gasoline the week ending March 9, 2012, than they did the week ending January 2.

These high prices and more spending by drivers for gasoline enrich oil companies. Last year the average gasoline price was $3.58 per gallon—the highest since at least 1976—so it’s little surprise that the big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell—made a combined record profit of $137 billion in 2011. These companies had nearly $60 billion in cash reserves, too. Yet under the Ryan budget it seems that these and other Big Oil and gas companies would continue to benefit from $4 billion in annual tax breaks.

Of course, Big Oil companies and the American Petroleum Institute, their wealthy lobbying organization, trot out a number of specious arguments to keep these tax breaks such as:

  • The companies can’t afford to lose these tax breaks? The entire industry’s total revenue loss from cutting the tax provisions is about 1 percent over the next decade.
  • Removing tax breaks will cost jobs? Despite earning more than $1 trillion in profits between 2001 and 2011, the big five oil companies have shed more than 11,000 U.S. jobs over the past few years, according to “Profits and Pink Slips: How Big Oil and Gas Companies Are Not Creating U.S. Jobs or Paying Their Fair Share” by the House Natural Resource Committee Democrats.
  • Giving taxpayers’ money to oil companies will help increase oil production? The big five oil companies actually produced 4 percent less oil in 2011 compared to 2010 despite earning 75 percent more in profits.
  • Big Oil companies already pay their fair share of taxes? ExxonMobil paid an effective federal tax rate of 18 percent in 2010. The average family’s effective federal rate is 21 percent.
  • Big Oil companies need as much capital as possible for exploration? In 2011 the big five companies spent $38 billion—or 28 percent of their profits—buying back their own stock to enrich their top executives, board of directors, and biggest shareholders instead of using these revenues to produce oil and gas from thousands of undeveloped leases. The big five companies also had $58 billion in cash reserves at the end of 2011.
  • Huge Big Oil earnings provide big benefits to Americans whose retirement plans own oil stock? An American Petroleum Institute spokesman notes that the California government employees’ pension plan held more than 4 percent of its investments in oil stock. But removing several billion dollars of annual tax breaks from companies that made $137 billion in 2011 would reduce middle-class retirees’ accounts by such a tiny amount that it would have almost no impact on them.

Instead of ending Big Oil tax breaks, Rep. Ryan’s proposed FY 2013 budget would slash funding for investments in clean energy research, development, deployment, and commercialization, along with other energy programs. The plan calls for a $3 billion cut in energy programs in FY 2013 alone. From 2013 to 2017 the Ryan budget would spend a paltry total of $150 million over these five years on these programs—which is barely 20 percent of what was invested in only 2012.

The FY 2013 budget proposal includes scant specifics about cuts in energy programs. Yet it explicitly calls for ending investments in programs that promote emerging technologies.

This budget would … pare back duplicative spending and non-core functions, such as applied and commercial research or development projects best left to the private sector. And it would immediately terminate all programs that allow government to play venture capitalist with taxpayers’ money.

This budget would roll back federal intervention and expensive corporate welfare funding directed to favored industries.

Based on this governing approach, one can assume that the Ryan budget would eviscerate investment in technologies that would reduce oil use and pollution. This could include:

  • Investments in the development of advanced batteries, essential for electric vehicles that use little or no oil.
  • Loans to auto companies to help them build super-fuel-efficient vehicles. For instance, a program signed into law by President George W. Bush provided a $5.9 billion loan to Ford to help it build 2 million fuel-efficient vehicles annually while creating 33,000 jobs.
  • Tax incentives to encourage investment in wind and solar energy deployment, which will create electricity with little or no pollution.

These vital programs will help the United States reduce oil use, which will help families save money, reduce foreign oil imports, enhance our security, create jobs, and reduce pollution. These investments will also increase American economic competitiveness since our rivals heavily invest in such programs. The Ryan budget ensures that we lose the high-stakes competition for the $2 trillion worldwide clean tech market.

Cutting funds for clean energy investments to rely on “greater revenue generation through prosperity, and market based solutions” also ignores the 100 years of federal support for oil production. According to an analysis by DBL Investors, the oil and gas industry received nearly $500 billion in subsidies over the past 90 years, while investments in renewable technologies were limited to $6 billion.

Rep. Ryan’s proposed budget also disregards the economic benefits of a clean energy future to middle-class families. In addition to creating new industries and jobs, clean energy sources that rely on homegrown wind, solar, geothermal energy, or efficiency will insulate Americans from rising and volatile energy prices.

Rep. Ryan’s budget maintains his recent path of supporting Big Oil at the expense of the middle class. In 2011 Rep. Ryan joined all House Republicans and 13 Democrats in his vote to keep Big Oil tax loopholes as part of the FY 2011 spending bill while cutting funds for education, medical research, and clean-tech investments. His subsequent FY 2012 budget left $40 billion in Big Oil tax breaks untouched, too, though it cut $30 billion from Medicare.

Interestingly, after Rep. Ryan introduced his 2012 budget last year, he told some of his constituents that he would support repeal of Big Oil tax breaks. Think Progress captured this discussion at a Ryan town meeting in Wisconsin.

Q: The subsidy for the oil companies that the federal government gives. They’ve gotta stop.

RYAN: Sure.

Q: End the oil company subsidies…

RYAN: I agree.

So why does his FY 2013 proposal leave these Big Oil tax breaks intact? Why would he break his word?

Perhaps it’s because Koch Industries, a large private oil company, is his fifth-largest campaign contributor over his career. And the oil and gas industry as a whole gave him $242,850 in campaign cash. Or maybe he maintained these oil tax breaks because Big Oil gave Republican incumbents and candidates 88 percent of their $20 million in donations so far this election cycle. This is a higher proportion than the 75 percent of $174 million in donations given by Big Oil to Republican congressional candidates beginning in 1990.

As he promotes his new budget, Rep. Ryan will make numerous claims about the urgency of cutting the federal budget deficit to justify cuts in clean energy, health, education, and other priorities essential to the American people. Maintaining $40 billion in tax breaks for rich Big Oil companies profiting from high gasoline prices makes his rhetoric hypocritical at best and a lie at worst.

The public won’t be fooled by Rep. Ryan’s claims. Hopefully the media won’t, either.

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress.

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Daniel J. Weiss

Senior Fellow