SHINGTON — As a candidate in 2020, Joseph R. Biden Jr. campaigned to end billions of dollars in annual tax breaks to oil and gas companies within his first year in office.
It’s a pledge he has been unable to keep as president.
Mr. Biden’s budget request to Congress this week was his fourth attempt to eliminate what he called “wasteful subsidies” to an industry that is enjoying record profits.
“Unlike previous administrations, I don’t think the federal government should give handouts to big oil,” Mr. Biden said after his inauguration. His new budget proposal calls for the elimination of $35 billion in tax breaks that would otherwise be provided to the industry over the next decade.
Mr. Biden’s wish is opposed by the oil industry, Republicans in Congress and a handful of Democrats. In Washington, it seems, oil and gas subsidies are the zombies of the tax code: impossible to kill.
“Everybody agrees fossil fuel subsidies are wasteful, stupid and moving things in the wrong direction,” said Michael L. Ross, a political science professor at the University of California, Los Angeles who studies fossil fuel tax breaks. “Getting rid of them seems to be one of the hardest things to achieve on the climate agenda.”
The oil and gas industry enjoys nearly a dozen tax breaks, including incentives for domestic production and write-offs tied to foreign production. Total estimates vary widely; environmental groups take a broad view of what constitutes a subsidy while the industry hews to a more narrow definition. The Fossil Fuel Subsidy Tracker, run by the Organization for Economic Cooperation and Development, calculated the total to be about $14 billion in 2022.
Two of the biggest tax breaks have been in place for about a century.
The oldest, known as “intangible drilling costs,” was created by the Revenue Act of 1913 and was aimed at encouraging the development of U.S. resources. The deduction allows companies to write off as much as 80 percent of the costs of drilling, things like employee wages and survey work, in the first year of operation, even before producing a drop of oil.
Another subsidy, dating from 1926 and known as the depletion allowance, initially let oil companies deduct their taxable income by 27.5 percent, a number that seemed strangely specific.
“We could have taken a 5 or 10 percent figure, but we grabbed 27.5 percent because we were not only hogs but the odd figure made it appear as though it was scientifically arrived at,” Senator Tom Connally, the Texas Democrat who sponsored the break and who died in 1963, was quoted as having said in “Sam Johnson’s Boy, a Close-Up of the President From Texas,” a biography of Lyndon B. Johnson.
That tax break proved so lucrative it prompted celebrities like Jimmy Stewart, Frank Sinatra and Bing Crosby to become oilmen on the side, buying interests in oil wells and using the deduction to shelter their Hollywood income.
The allowance was eliminated in 1975 for large producers and reduced for smaller companies, which are still allowed to deduct 15 percent of their revenue from their taxable income.
Early on, lawmakers justified the deductions by saying they would help attract investors to oil drilling, which could be a risky venture. After all, not every well strikes oil.
Today, Exxon Mobil and Chevron, the largest U.S. energy companies, are enormously profitable. Last year, American companies pumped 13 million barrels each day on average, a record that had made the United States the largest crude oil producer in the world, according to the U.S. Energy Information Administration. The country is also the world’s leading exporter of liquefied natural gas.
The oil and industry is expected to reap $1.7 billion in 2025 from the intangible drilling tax break, and $9.7 billion over the next 10 years, according to the White House. It is expected to realize $880 million in benefits from the depletion allowance tax break in 2025, and $15.6 billion by 2034.
Instead of investing in their businesses, the oil and gas companies have poured profits into “stock buybacks, mergers, and acquisitions that benefited executives and wealthy shareholders,” the Biden administration said on a fact sheet accompanying the budget proposal.
The two tax incentives together have increased the expected value of new oil and gas projects by billions of dollars in most years and as much as $20 billion in years when the price of oil was high, according to a 2021 study by the Stockholm Environment Institute, a research organization.
A New York Times analysis of lobbying reports found that energy companies have spent more than $30 million since Mr. Biden was elected on lobbying efforts that included preserving the intangible drilling and depletion allowance tax breaks. The U.S….
Read More: The Zombies of the U.S. Tax Code: Why Fossil Fuels Subsidies Seem Impossible to