Good Question: Why Does Big Oil Get Taxpayer Subsidies?

By Jason DeRusha, WCCO-TV

MINNEAPOLIS (WCCO) — When gasoline prices go up, oil company executives go to Washington to get a beat-down from Congress. But this time, the questions were about subsidies, as some estimate the oil companies get $4 billion in tax breaks. So, what kind of subsidies do oil companies get, and why?

“Don’t punish us for doing our job well,” said Chevron CEO John Watson, defending the tax breaks the companies get.

“The vast majority of it is tax breaks. Tax code items, some have been around for almost 100 years,” said Bob Kleiber, a finance instructor at Metro State University, who’s studied oil company subsidies.

The biggest break is fairly recent. In 2004, Congress passed Section 199 of the IRS Tax Code, a Domestic Manufacturing Deduction.

“Any manufacturer gets 9 percent deduction on profits,” said Kleiber. “Oil companies are only given 6 percent,” he said, but that amounts to about $1.8 billion a year.

Democrats in Congress and President Barack Obama have proposed eliminating that deduction for the five largest oil companies.

“I’m going to take my capital elsewhere. The U.S. is not attractive, I’ve got to go somewhere else,” is how Rex Tillerson, CEO, Exxon Mobil Corporation, characterized that situation.

“Even in the context of record profits?” challenged Sen. Olympia Snowe, R-Maine.

“We make about — we make about 6 cents on sales,” answered Watson.

Indeed, oil companies have a much smaller profit margin than a computer or pharmaceutical company. But they do so much volume that the real dollars are enormous.

According to Kleiber, the second biggest money-saver for oil companies is the fact they’re allowed to write-off the costs of drilling oil wells. Oil companies that explore, drill and refine can write-off 70 of their exploration costs, which work out to about $1.2 billion a year.

Kleiber said that deduction’s been around since 1913, when the government needed to motivate companies to drill.

With high oil prices, it’s not likely that oil companies need an incentive to drill.

Of course, all companies get tax breaks for various things, amortizing capital expenses, writing off the cost of doing business.

The agriculture sector gets $16 billion a year in direct subsidy payments, according to the USDA. Corn farmers specifically get $4 billion.

“We’re asking for the same treatment, comparable treatment to other industries, Senator,” said Watson.

More from Jason DeRusha
  • Bob Milligan

    The media and politicians have the bad habit that misleads citizens and lead to questioning by citizens. The bad habit is to use word incorrectly, especially in headlines. Your article is very accurate so why do you have a misleading headline. Depreciation and depletion are not subsidies; there are favorable tax treatments by allowing expenditures to be written off sooner.

    Being precise with the words you use would improve by your credibility and your value for informing all of us.

    • jimmy

      All you really need to know is that Exxon Mobile paid zero in income tax in 2010. At least make these clowns pay the same percent of tax as everyone else does.

      • Mike

        Exxon Mobile and other big oil companies will never pay more taxes. If their taxes are raised, they will simply pass this price onto us, the consumer. We will pay the tax when we fill up at the gas pump.
        Think before you simply rush to make those “clowns” pay more taxes..

    • dave

      how about trying to stand on your own two feet, instead of standing with your hand out?

  • Pork Chop Fan

    It’s funny how Big Oil is the scapegoat. We are talking about $4 billion. Guess how much Fannie Mae and Freddie Mac cost the taxpayers last year? How about over $100 billion (and counting).

    You have to love politicians. Only in Washington can you have a record budget deficet, yet try to spin the problem elsewhere. Time for politicians to look in the mirror.

    • jimmy

      First of all Bush had oversight of Fanny and Freddy. As a matter of fact in 2006 Bush even appointed his old college buddy James Lockhart to oversee Fanny and Freddy
      Second if Big oil and other corporations and their CEO’s paid taxes like everyone else we may not have a deficit

      • Jason

        Try Barney Frank, or Chris Dodd. Way to stay on topic.

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    […] dollars in tax breaks. So, what kind of subsidies do oil companies get, and why? Read more on CBS MinnesotaChariot Oil &Gas Ld – Resource Update Chariot Oil &Gas Ld – Resource Update […]

  • Victim Du Jour

    It’s like Meth Addicts complaining about people who make Meth.

    Why don’t you show us what States and cities using the most oil?

    • Derrick

      That makes no sense in relation to taxes. Is you victimness a head injury?

  • Jesse (not that one)

    Cant we just say: Why do oil companies get tax breaks? Oh wait, it’s because what they do fuels EVERYTHING.

    • jimmy

      That makes no sense at all, on top of that it’s not even true.

      • bla60ah

        Oil/gas companies provide the vast majority of the power of our country. Natural gas alone provides over 45% of the power of our nation. When you include the amount of oil used to power diesel trucks, cars, etc, they do power everything.

        Also, the oil companies also provide the material to manufacture plastic.

  • RobK

    Why should oil companies be singled out? Every company is allowed to deduct expenses from gross receipts. How about eliminating all special tax breaks, such as those for agriculture, Hollywood, etc.

  • Ali

    The amount of taxes government collects from gas sales drawfs all the oil compinies combined profit. Who is creating the problem here… cut spending and cut gas taxes. That will not happen as Congress knows who is buttering their bread. To go after big oil is biting the hand that feeds…

  • Larry Pratt

    Big Oil is on the verge of making $140B in profits this year and their CEOs say “I am taking my capitol elsewhere where it is more attractive. That shows us exactly how much they care about the country that has given them so much. We can add all of the subsidies that Big Oil gets together and it would just bearly make a dent in their total profits.

    As far as Congress goes, all members (Democrat and Republican) just add lip service to these CEOs. The last time these CEOs come before this commitee, they were asked, “Why do you need these enormous profits?” And the answer was “They are to make up for anticipated future losses.” Not one of the members called them on that answer.

    These CEOs need to be brought down from the cloud they seem to be riding and become real patriotic Americans..

    • Patriot

      Yes, Larry, nothing but a bunch of traitors to the country that made them wealthy and successful. Even more sad that Congress can’t point that out. What a dog and pony show!

  • SueDinNY

    If you know anything about business, they get to write off expenses and losses. The oil companies do not get subsidies per se, they get write offs. If they do not have write offs and only have a 5% profit margin then they will RAISE the PRICE of GAS to pay for the lack of write offs. They have to make a profit – they’re a company, unlike the gov’t that STEALS our money. So, the oil companies leave the USA and you will get none of their taxes. People are SO stupid.

    • Larry Pratt


      If I made a billion dollars a year, I wouldn’t care if it was a 1% profit margin or a 100% profit margin. Using percentages can result in some very misleading information. So, beware, when a politician (or anyone) uses percentages.

      Like the story of Donald Trump walking into a homeless shelter wth 25 completely broke men and saying “How bad is this, the average net worth in this room is $1,000,000,000 per person.

  • Jon

    SuedinNy you say people are so stupid! Defending Big Oil makes you the brightest bulb on the Planet. NOT!

  • will the new tax on gas effect you? - Page 3 - US Message Board - Political Discussion Forum

    […] […]

  • dave

    The C.E.O. of shell oil company said they don’t need subsidies! i guess Exxon is in worse shape lol

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