U.S. oil and natural gas producing companies should not receive federal subsidies in the form of tax breaks because their businesses contribute to global warming, U.S. Treasury Secretary Timothy Geithner told Congress on Wednesday.
Will this be the new litmus test, the new benchmark?
"We don't believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don't think that's good economic policy and we think changing those incentives is good for the country," Geithner told the Senate Finance Committee at a hearing on the White House's proposed budget for the 2010 spending year.
This isn't about incentives, this is about punishing the small companies in the business to drive them out of the business. This is what the effect will be: anything else is whitewash.
The Obama administration's budget would levy an excise tax on oil and natural gas produced in the Gulf of Mexico, raising $5.3 billion in revenue from 2011 to 2019.
This new 13 percent tax on all oil and gas production in the Gulf would only affect those companies enjoying a loophole that allows them to avoid paying royalties on the energy supplies they drill. Companies already paying royalties would get a tax credit.
Obama's budget would also place a $4 per acre annual fee on energy leases in the Gulf that are designated as nonproducing. The budget proposal projects the fee would generate $1.2 billion from 2010 to 2019.
This is also known as the "use or lose" provision: this is stupid. Companies lease large tracts because if you don't lease them, your competitor will: nonproducing tracts haven't been explored yet, meaning that all the White House is doing here is telling the companies that if they reserve tracts - an industry practice - that may or may not be productive, they have to do the drilling to determine whether they are productive or not in order to avoid paying a tax on their holding the leases. All this is designed to do is to drive small companies, who live or die according to their ability to drill more producing wells than non-producing wells on unknown tracts, out of the business.
Gee, and I thought the Republicans were the party of Big Business: my bad.
Senator John Cornyn of Texas criticized the tax increases, saying they would hurt independent energy companies that provide a large share of U.S. oil and gas supplies."My view is that higher taxes on small and independent producers here in America will make us more dependent on imported oil and gas while we transition to cleaner energy alternatives, a goal we all share," said Cornyn. "And it will also hurt job retention and job creation in the energy sector, which provides an awful lot of jobs in this country."
Geithner said the additional taxes "can be absorbed" by the oil and gas companies, given the billions of dollars they have earned from high energy prices.
Here you can see why Geithner has his job: class envy, let the rich pay, businesses can pay for everything, I don't want to hear about the billions in costs.
Ah, but which U.S. oil and gas producers?
Let's look, briefly, at the history of this industry. You start out with a few big players who knew how to game the system and got subsidies to go do their work, persuading enough lawmakers in Congress at some point that This Was A Good Thing.
Smaller companies pop into existence as the subsidies make it possible for them to compete, and not a few of the smaller companies are staffed by folks who left the big companies to go out on their own. They're faster and more efficient than the big companies, who tend to stake claim to huge tracts of land to keep the small guys out. Big companies got deep, deep pockets, not the least because of the subsidies, which favor big companies.
Big companies don't like the small guys because they're horning in on a very profitable business.
So the big companies lobby and spend, and they're happy to find that the ecofreaks of the new Administration, while in some ways smart people, are naive about how the world actually works, and they are able to find ways to kill the subsidies.
Result: small businesses can't compete - no deep pockets, remember - and the large companies go back to the days of practical monopolies and maximizing their profits at the cost of the consumer.
In this case aided and abetted by the ecofreaks of the White House, who think that they're shafting the big companies with the per-acre fees. The big guys just need to have enough money to outlast the little guys, who simply don't have the reserves to pay the fees and remain profitable.
Great example of how big business will get along famously with the Obama Administration.
The losers? The small companies and, above all, the American consumer, who, after all, has to be protected from low energy costs in order to save the environment.