It's bad enough that the Deepwater Horizon oil rig (registered in the Marshall Islands) and its owner, Transocean (corporate headquarters in Switzerland), have found tax relief by setting up shop abroad. But a recent New York Times article illustrates exactly how many of your tax dollars Big Oil is sucking up.
Oil production is among the most heavily subsidized businesses in the U.S., with tax breaks - including arcane drilling incentives dating back to 1913 - available at virtually every stage of the exploration and extraction process. According to the most recent study conducted by the Congressional Budget Office, released in 2005, Big Oil's capital investments are taxed at a rate of 9%. That's lower than almost any other industry, considering the overall rate for businesses in general is 25%.
For many small to medium sized oil companies, most of the taxes are eliminated by various credits. Indeed, for these companies, subsidies are so high that the return on investment is often higher after taxes and credits are accounted than before. Various government reports indicate that these tax breaks average about $4 billion a year.
BP, for example, boasts sizable tax benefits from leasing the Deepwater Horizon rig from Transocean. According to a letter sent in June to the Senate Finance Committe, the company used a tax break to write off 70% of rent for the rig. That comes out to more than $225,000 per day since the lease began.
Congress and the Obama administration are working on a bill to cut $20 billion in oil industry tax breaks over the next decade. Unless these reforms are enacted, one has to wonder how long Big Oil will continue to shortchange the American taxpayer?