A Brief History of Big Tax Breaks for Oil Companies

There will be subsidies: Nine decades later, “perhaps the most glaring loophole” in the tax code is still going strong.

Oil derricks and a “lake” of spilled crude in Santa Barbara, California, in 1935. Associated Press

Over the past century, the federal government has pumped more than $470 billion into the oil and gas industry in the form of generous, never-expiring tax breaks.

1926 Congress approves the “depletion allowance,” which lets oil producers deduct more than a quarter of their gross revenues. Texas Sen. Tom Connally, who sponsored the break, later admits, “We could have taken a 5 or 10 percent figure, but we grabbed 27.5 percent because we were not only hogs but the odd figure made it appear as though it was scientifically arrived at.”

1985 President Reagan takes aim at federal tax breaks. Oil and gas is one of few industries to emerge unscathed from the "showdown at Gucci Gulch." He fails to convince Congress to kill the depletion allowance for most oil wells.

1995 President Bill Clinton signs the Deep Water Royalty Relief Act, letting oil companies drill in federal waters without paying any royalties. More than 1,000 leases omit a promised price trigger, costing billions.

2005 With oil prices on the rise, President George W. Bush states, “With $55 [a barrel] oil, we don’t need incentives to oil and gas companies to explore.” But a few months later, he signs the Energy Policy Act, which expands the depletion allowance to apply to more drillers. It also lets companies write off exploration costs over two years instead of one.

2007 Illinois Sen. Barack Obama introduces the Oil sense (Subsidy Elimination for New Strategies on Energy) Act, which would repeal the depletion allowance and suspend royalty-free leases in the Gulf of Mexico. The bill dies in the Democratic-controlled Senate Finance Committee. A House bill that would have expanded tax credits for renewable energy and energy conservation also dies.

2013 Despite talk of everything being “on the table,” oil’s tax perks survive the fiscal-cliff negotiations.
Congressional Democrats introduce five bills targeting tax giveaways for oil and gas companies. Their death is all but assured, especially in the Republican-controlled House.
In April, Obama introduces his 2014 budget, which includes $23 billion for renewable energy and energy efficiency over 10 years and permanent tax cuts for renewable power generation. It also would end “inefficient fossil fuel subsidies.” In contrast, the gop budget proposed by Wisconsin Rep. Paul Ryan targets “federal intervention and corporate-welfare spending” by cutting subsidies for renewables. Tax breaks for oil are left untouched.

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