POLITICS

Dems' policy on Big Oil is punishment, not reform

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President Obama gave a tax break last year to every Wall Street and drug industry executive who contributed to his campaign.

The above sentence, while technically true, is a grossly unfair characterization of the facts (Obama signed a bill cutting taxes for everyone subject to the payroll tax).

But the misleading construction provides an insight into the way Obama and congressional Democrats talk about tax policy.

The Democrats' current war on "subsidies for Big Oil" is not about ending special favors for the oil industry. It's about singling out a handful of big oil companies and punishing them with tax increases. This reflects Obama's general view of government's role in the economy: Rather than being an impartial referee evenly applying neutral rules, the president uses taxes and regulations to reward "the good guys" and punish "the bad guys."

In his budget, Obama proposed many tax increases on oil companies, and Democrats brought some of these proposals to the Senate floor in the "Close Big Oil Tax Loopholes Act" (S 940), sponsored by Sen. Bob Menendez, D-N.J. Some of Obama's and Menendez's provisions could be interpreted as leveling the playing field and rationalizing the tax code. But mostly, the bill just exacts punishment on a profitable industry that's politically unpopular.

First of all, the bill doesn't touch our two biggest oil subsidies -- massive federal spending on highways, which promote driving, and a trillion dollars on wars to prop up favorable regimes in the Mideast and North Africa.

But the first sign this bill isn't about fairness is that taxes are raised only on "oil companies with gross receipts in excess of $1 billion in a taxable year and an average daily worldwide production of crude oil of at least 500,000 barrels a year." In other words, this bill would create one set of tax laws for most oil companies, and another set for Exxon, Chevron, Conoco, Shell and BP.

And most of the tax changes amount to straightforward discrimination against these companies.

The biggest tax break benefiting the oil industry is the domestic production tax credit. As far as subsidies in the tax code, this one is fairly broad. You get this tax break if you manufacture anything in the United States, or harvest timber, grow crops, mine for coal -- or pull oil or gas out of the ground. Obama and congressional Democrats haven't proposed a repeal of the domestic production tax credit (which would actually advance tax neutrality). They're instead fighting to exclude the big five oil companies from it. Coal companies would still get this subsidy under the Democrats' proposals, as would oil companies producing no more than 499,999 barrels a year.

Obama's and Menendez's other targeted provisions are matters of interpretation regarding how U.S. tax law should pertain to the particularities of the oil and gas industry. For instance, should oil companies get the foreign tax credit for the taxes they pay petro-states, or should those taxes be treated -- at least in part -- as royalty payments, which do not get the tax credit? There are fair arguments on both sides of this particular question. The Tax Foundation says all foreign taxes should be treated as taxes. Some liberals say they should be treated partly as royalties.

In any event, the Democratic rhetoric is way off base. Harry Reid said on the floor last week: "If we are serious about reducing spending, ending tens of billions in taxpayer giveaways to big oil companies shouldn't be one of the difficult decisions we have to make. When the other side says the alternative is to end Medicare, slash Medicaid, and put millions of seniors at risk, the choice is that much clearer. We cannot take with one hand from those who can least afford it and give with the other hand to those who can."

So tax provisions that treat oil companies like other companies become a "giveaway," while a bill setting higher taxes for only five companies counts as fairness.

Obama played this dishonest game during the campaign, accusing Sen. John McCain of wanting "to give them another $4 billion in tax breaks." The matter at hand: McCain was proposing a cut in the corporate income tax rate. Of course, "Big Oil" would benefit from such a cut, but so would every other company.

The Democratic talk here is not just specious rhetoric, it's also basic Obamanomics: The purpose of the tax code is to promote favored activities and discourage disfavored ones. "Big Oil" happens to be on the wrong side of the line.

Timothy P.Carney, The Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.

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