President Biden’s Struggle to End Oil and Gas Tax Breaks
President Joseph R. Biden Jr. made a bold promise during his 2020 campaign – to eliminate billions of dollars in annual tax breaks for oil and gas companies within his first year in office. However, this pledge has proven to be a challenging feat for the president.
In his recent budget request to Congress, President Biden made his fourth attempt to end what he referred to as “wasteful subsidies” to an industry that is currently reaping record profits. The proposed budget aims to eliminate $35 billion in tax breaks that would have otherwise been provided to the oil and gas industry over the next decade.
Despite the president’s efforts, opposition to his proposal comes from the oil industry, Republicans in Congress, and even some Democrats. The battle to eliminate these tax breaks has been described as trying to kill zombies in the tax code – a seemingly impossible task.
The oil and gas industry benefits from nearly a dozen tax breaks, including incentives for domestic production and write-offs related to foreign production. While estimates of the total subsidies vary, the Fossil Fuel Subsidy Tracker calculated it to be around $14 billion in 2022.
Two of the most significant tax breaks have been in place for over a century. The “intangible drilling costs” deduction, created in 1913, allows companies to write off up to 80% of drilling costs in the first year of operation. Another subsidy, known as the depletion allowance and dating back to 1926, initially allowed oil companies to deduct 27.5% of their taxable income.
Despite the profitability of major energy companies like Exxon Mobil and Chevron, efforts to end these tax breaks have consistently failed. Lobbying by energy companies, which have spent over $30 million since President Biden’s election, has played a significant role in preserving these subsidies.
The debate over these tax breaks continues, with industry executives arguing against the term “subsidy” and pointing to the expansion of federal subsidies for renewable energy. However, critics argue that the government’s support for fossil fuels contradicts the urgent need to transition away from oil, gas, and coal to combat climate change.
As the global push to move away from fossil fuels gains momentum, the United States faces pressure to align its policies with the goals of reducing carbon emissions. The debate over oil and gas tax breaks highlights the challenges of balancing economic interests with environmental concerns in the fight against climate change.
