Friday, January 28, 2011

One Thing He Got Right

Although there is ample room for criticism of President Obama's State of the Union address for being too vague and abstract, the president was specific in one area: ending subsidies to the oil industry. An editorial in today's Los Angeles Times noted that suggestion and approved heartily. So do I.

Analysts are expecting a bonanza when Exxon Mobil Corp. announces its fourth-quarter earnings on Monday; the company's stock has jumped by nearly 20% during the last year, and in the first three quarters of 2010, its profit was $21.2 billion — not a bad haul during a worldwide recession. Other oil companies have had similar success, thanks to growing demand in India and China. Yet U.S. taxpayers subsidize this industry to the tune of $4 billion a year.

This kind of largesse toward a hugely profitable business seems bizarre, especially at a time when the federal deficit is reaching alarming proportions, yet efforts to end the tax deductions and credits for companies that don't need them have gone nowhere. That isn't stopping President Obama from trying. In his State of the Union address, he proposed an uptick in federal spending on clean-energy research and development, to be paid for by ending subsidies for oil companies. "I don't know if you've noticed, but they're doing just fine on their own. So instead of subsidizing yesterday's energy, let's invest in tomorrow's," Obama said.
[Emphasis added]

President Obama asked the 111th Congress to end the subsidy, but Congress declined. Republicans and "Oil State" Democrats would have none of it. There's even less chance that the 112th Congress will end the subsidies, especially with Republicans in control of the House. The official excuse (delivered to congress critters via fax) will be that ending the subsidies will halt drilling and drive up the cost of gasoline which, in turn, will mean increased prices and (wait for it) lost jobs. And that's a lot of hooey, as the editorial points out.

...A 2007 report by the Joint Economic Committee, which advises Congress on economic matters, found that ending the manufacturing deduction would have a negligible effect on consumer prices. That's because when crude is fetching high prices, as it has for many years and will for many more, companies have ample incentive to drill even without a subsidy — so eliminating it wouldn't cause the kind of supply shortages that push up prices at the pump.

That bit of information, especially when coupled with the earnings reports which will roll out starting Monday, should be thrown in the faces of the recalcitrant with great regularity by the administration and by the news media, including the Sunday Morning Bobbleheads. It also wouldn't hurt if a few million Americans let their representatives know that such subsidies are contributing to the budget deficit and are obviously unnecessary.

It's about time.



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