SINGTON — As a 2020 candidate, Joseph R. Biden Jr. campaigned to end billions of dollars in annual tax breaks to oil and gas companies in his first year in office.
It’s a promise he couldn’t keep as president.
Mr. Biden’s budget request to Congress this week was his fourth attempt to eliminate what he called “wasteful subsidies” to an industry enjoying record profits.
“Unlike previous administrations, I don’t think the federal government should be giving handouts to big oil,” Mr. Biden said after his inauguration. His new budget proposal calls for eliminating $35 billion in tax breaks that would otherwise provide the industry over the next decade.
Mr. Biden’s wish is opposed by the oil industry, Republicans in Congress and a handful of Democrats. In Washington, it seems that oil and gas subsidies are the zombies of the tax code: impossible to kill.
“Everybody agrees that fossil fuel subsidies are wasteful, stupid and moving things in the wrong direction,” said Michael L. Ross, a political science professor at the University of California, Los Angeles who studies fossil fuel tax breaks. “Getting rid of them seems to be one of the hardest things to achieve on the climate agenda.”
The oil and gas industry enjoys nearly a dozen tax breaks, including incentives for domestic production and write-offs tied to foreign production. Overall estimates vary widely. environmental groups have a broad view of what constitutes a subsidy, while industry follows a narrower definition. The Fossil Fuel Subsidy Tracker, run by the Organization for Economic Co-operation and Development, estimated the total at about $14 billion in 2022.
Two of the biggest tax breaks have been in place for about a century.
The oldest, known as “intangible drilling costs,” was created by the Revenue Act of 1913 and was intended to encourage the development of American resources. The deduction allows companies to write off up to 80 percent of drilling costs, things like workers’ wages and exploration work, in the first year of operation, even before they produce a drop of oil.
Another subsidy, dating back to 1926 and known as the depletion allowance, initially let oil companies deduct 27.5% of their taxable income, a figure that seemed strangely specific.
“We could have gotten 5 or 10 percent, but we got 27.5 percent because not only were we pigs, but the weird percentage made it look like it was scientifically arrived at,” Sen. Tom Connally, D- Texas who supported the break. and who died in 1963, was quoted as saying in “Sam Johnson’s Boy, a Close-up of the President From Texas,” a biography of Lyndon B. Johnson.
This tax break proved so lucrative that it prompted celebrities like Jimmy Stewart, Frank Sinatra and Bing Crosby to become oilmen on the side, buying interests in oil wells and using the deduction to protect their Hollywood income.
The allowance was abolished in 1975 for large producers and reduced for smaller companies, which are still allowed to deduct 15% of their revenue from their taxable income.
Early on, lawmakers justified the cuts by saying they would help attract investors to oil drilling, which could be a risky venture. After all, not every well hits oil.
Today, Exxon Mobil and Chevron, the largest US energy companies, are extremely profitable. Last year, U.S. companies pumped an average of 13 million barrels a day, a record that had made the United States the world’s largest crude oil producer, according to the U.S. Energy Information Administration. The country is also the world’s leading exporter of liquefied natural gas.
The oil and industry is expected to receive $1.7 billion in 2025 from the intangible drilling tax break and $9.7 billion over the next 10 years, according to the White House. It is expected to realize benefits of $880 million from the depletion allowance tax relief in 2025 and $15.6 billion by 2034.
Instead of investing in their businesses, oil and gas companies funneled profits into “stock buybacks, mergers and acquisitions that benefited executives and wealthy shareholders,” the Biden administration said in a fact sheet accompanying the budget proposal.
The two tax incentives together increased the expected value of new oil and gas projects by billions of dollars in most years and by as much as $20 billion in years when the price of oil was high, according to a 2021 study by the Stockholm Environment Institute. a research organization.
A New York Times analysis of lobbying reports found that energy companies have spent more than $30 million since Mr. Biden’s election on lobbying efforts that included maintaining intangible tax breaks for drilling and depletion. The US Chamber of Commerce, which spends more than $100 million a year lobbying on a wide range of issues, also cited energy tax breaks in its lobbying reports.
Ending oil and gas subsidies is not a new idea, but it has never gotten far.
President Barack Obama tried in nearly every budget to repeal the tax breaks, but failed, even when Democrats controlled both the House and Senate from 2009 to 2011.
Among the Democrats who fought to keep the subsidies was Sen. Joe Manchin III of West Virginia, the state that ranks second for coal production and fourth for natural gas. In Parliament, representatives Vicente Gonzalez Jr. and Henry Cuellar, both Texas Democrats, called on party leaders in 2021 to maintain the subsidies. They were joined by Filemon Vela Jr., a Democrat who also represented Texas in the House at the time.
Mr. Manchin said this week that Congress had enacted tax incentives for both clean energy and fossil fuels, and that coal, oil and gas should not be singled out for changes.
“The Biden administration and its radical climate advisers have ignored common sense by asking Congress to remove these incentives before we make an energy transition that doesn’t sacrifice reliability and affordability,” Mr. Manchin said in a statement.
Oil executives reject the term “subsidy” to describe tax policies. They argue that most industries enjoy tax breaks and oil companies write off only a fraction of what they pay in federal taxes.
They also point out that federal subsidies for wind, solar and other forms of clean energy are expanding rapidly. The Energy Information Administration found that about 46 percent of federal energy subsidies between 2016 and 2022 are related to renewable energy sources.
Anne Bradbury, executive director of the American Exploration & Production Council, called Mr. Biden’s call to change the tax code “a direct attack on American energy production” that would hurt an industry that supports more than 9 million jobs.
“This budget should not even be passed in the House or Senate, and lawmakers in both houses should craft fiscal policy that does not hinder American energy production,” Ms. Bradbury said in a statement.
Senator Lisa Murkowski, Republican of Alaska, dismissed Mr. Biden’s call to end the tax breaks as a message aimed at young climate activists. “Do I think it’s going anywhere? No,’ she said.
Beyond the debate over semantics, the upshot is that the government is helping to artificially lower the price of producing oil, gas and coal in a way it doesn’t for other producers, economists said.
“It’s just corporate welfare,” said Joseph Aldi, a professor at Harvard University’s John F. Kennedy School of Government who served as President Barack Obama’s special energy adviser.
Others note the irony of continued government support for fossil fuels at a time when scientists say nations must move quickly away from oil, natural gas and coal to reduce carbon emissions that cause climate change.
Congress has “a fiscal and moral responsibility to prevent taxpayer dollars from supplementing the profits of an industry that is destroying our planet,” said Sen. Bernie Sanders, R-Vermont.
Last year, nearly 200 countries signed a global agreement at the United Nations climate summit in Dubai, United Arab Emirates, to transition away from fossil fuels and eliminate “inefficient” subsidies for coal, oil and natural gas. The United States was among the signatories.
