President Obama Demagogues Energy

(originally posted at Mere Comments)

Recently, President Obama said in an interview with Ed Henry of Fox News: “I want gas prices lower because they hurt families.” As you may have noticed, gasoline prices have increased significantly in the recent past. It can easily take $75 or more to fill up a gas tank nowadays. And with $5 per gallon gas, we might be moving to $100 tanks by this summer. President Obama was speaking about energy the other day at Nashua Community College in Nashua, New Hampshire. In his remarks, the President said the following:

But over the long term, an all-of-the-above strategy requires the right incentives. And here’s one of the best examples. Right now, $4 billion of your tax dollars — $4 billion — subsidizes the oil industry every year.


THE PRESIDENT: Four billion dollars. Now, these companies are making record profits right now — tens of billions of dollars a year. Every time you go to the gas tank or fill up your gas tank, they’re making money. Every time. Now, does anyone really think that Congress should give them another $4 billion this year?


THE PRESIDENT: Of course not. It’s outrageous. It’s inexcusable. And I am asking Congress — eliminate this oil industry giveaway right away. I want them to vote on this in the next few weeks. [Applause.] Let’s put every single member of Congress on record: You can stand with the oil companies, or you can stand up for the American people. You can keep subsidizing a fossil fuel that’s been getting taxpayer dollars for a century, or you can place your bets on a clean-energy future.

The definition of a demagogue is a political leader who uses popular prejudices and false claims in order to gain power. President Obama recently stated that it might be a good idea to exchange fossil fuels with algae and other pond-scum. (Good luck on getting Air Force One to operate on algae!) However, there are many problems currently with wind, solar and electric cars before we deal with the matter of energy from algae. (Speaking of electric cars, as most electricity in the U.S. is produced by coal, an electric car is practically a coal-fired vehicle, so perhaps not quite as “environmentally clean” as imagined.) For an excellent summary of the present limitation of the use of non-fossil fuels, please see an article by William Tucker in The American Spectator, which is available here.

The President in his remarks in Nashua referred to “subsidies” for the oil companies going on for a century. What he is referring to is the use of the depletion allowance, which is used in a wide variety of mining, timber, petroleum and other extractive industries. The depletion deduction allows an owner or operator to account for the reduction of the value of the extracted product’s reserves. In this way, it is similar to the deductibility of depreciation in every other business that uses long-term assets. The depletion allowance was first introduced in the Revenue Act of 1913 (derived from the 16th Amendment to the U.S. Constitution and is, thus, as old as the modern version of the federal income tax). Then, Congress increased the depletion allowance rate to its present level in 1926. Of course, if you haven’t worked in an extractive industry or studied accounting, you likely have never heard of the depletion allowance. But the President is correct in this regard: it has been around for almost 100 years.

In our nation, there are a number of major oil companies and many independent producers of oil and gas. But to balance the President’s remarks, you might not realize that to take the example of ExxonMobil, the largest U.S.-based energy company, its profit on gasoline, diesel and other petroleum products is only pennies per gallon. For example, in the first and second quarters of 2011, ExxonMobil earned 7 cents and 8 cents, respectively, on each gallon of gasoline, diesel and other petroleum products it refined and sold in the United States. In comparison, local, state and federal gasoline taxes average 49 cents per gallon nationally, and can be as high as 66 cents in California and New York. I wonder why we never hear of the need to reduce excess excise taxes on gasoline, especially now that gas prices are at the highest level in American history. (That is something that the President can do to help hurting families. Oh wait, as gas and diesel prices go up, the local, state and federal governments increase their take as well!)

And ironically, a review of ExxonMobil’s U.S. tax bill shows that it is often greater than the company’s operating earnings in the United States. I would hate for this to happen to me, but in 2011, ExxonMobil incurred $12.3 billion in tax expenses in the U.S., on its $9.6 billion in operating earnings in the U.S. (ExxonMobil has operations in 100 nations.) You might wonder whether this might just be an unusual occurrence, but during the five-year period of 2006-2010, U.S. tax expense for Exxon-Mobil was $57 billion, which was $18 billion more than the company’s operating earnings in the U.S. during the same period.

Yes, it is an election year, and so lots of crazy things will be said, even by President Obama. Some of the statements made this year are not true, and often, the statements will prey on people’s fears and prejudices, and seek to exploit class envy. Yes, we are angry or at least annoyed that gasoline prices are so high. And yes, it does affect our household budgets and contributes to the growing number of “hurting families.” But as the Nobel-prize winning Energy Secretary Steven Chu recently said in a congressional hearing, his goal was not to get the price of gasoline to go down. (Of course, he also defended the billions of dollars “invested” in clean-energy companies like Solyndra, but I digress.) But Touchstone and Salvo readers are smart people who want to know the facts and are not enticed by the siren call of unexamined political rhetoric. After all, even Nobel-prize winning Department of Energy Secretaries and Harvard-trained lawyers can say some truly outrageous and untrue statements, especially in an election year.

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