President Biden’s Struggle to End Oil and Gas Tax Breaks
President Biden’s campaign promise to end billions of dollars in annual tax breaks to oil and gas companies within his first year in office has hit a roadblock. Despite multiple attempts, his budget request to Congress this week marks his fourth unsuccessful effort to eliminate what he calls “wasteful subsidies” to an industry that is currently reaping record profits.
The proposed budget seeks to eliminate $35 billion in tax breaks that would otherwise benefit the oil and gas industry over the next decade. However, opposition from the industry itself, Republicans in Congress, and even some Democrats has made it difficult to achieve this goal.
The oil and gas industry enjoys nearly a dozen tax breaks, including incentives for domestic production and write-offs tied to foreign production. Estimates of the total subsidies vary, with environmental groups taking a broader view compared to the industry’s more narrow definition. The Fossil Fuel Subsidy Tracker calculated the total to be around $14 billion in 2022.
Two of the biggest tax breaks have been in place for about a century. The “intangible drilling costs” deduction, created in 1913, allows companies to write off up to 80 percent of drilling costs in the first year of operation. Another subsidy, known as the depletion allowance, dating back to 1926, initially allowed oil companies to deduct 27.5 percent of their taxable income.
Despite the industry’s profitability, with companies like Exxon Mobil and Chevron leading the way, efforts to end these tax breaks have been met with resistance. Lobbying efforts by energy companies have totaled over $30 million since Biden’s election, with the U.S. Chamber of Commerce also advocating for the preservation of these tax breaks.
Critics argue that these tax breaks amount to corporate welfare and artificially lower the cost of producing oil, gas, and coal. At a time when the world is moving towards renewable energy to combat climate change, the debate over these subsidies continues.
While President Biden’s push to end oil and gas tax breaks faces an uphill battle in Congress, the global shift towards cleaner energy sources highlights the urgency of addressing these subsidies to align with climate goals.
