Should Tax Incentives for Oil Companies be Stopped?

While watching CNBC this morning, I heard a banker say that tax incentives for oil companies be stopped and/or shifted to energy industries such as wind and solar which would make us less dependent on oil. It may make long term sense. I would definitely agree that there should be incentives for wind and solar developers and would ask, “If incentives for wind and solar developers don’t already exist, why not?”

I would assume that tax incentives for oil companies exist to encourage them to find and drill for oil and gas in domestic locations. Why give incentives to oil companies to search for oil in Brazil, the Persian Gulf or Indonesia?

Unfortunately, neither giving incentives to wind and solar developers nor rescinding oil companies are going to do anything for the American consumer in the short term.

Hillary Clinton and John McCain want to remove the gasoline tax for this summer to help reduce the impact of rising gasoline prices. The Democratic leadership in Congress, falling in line with Barack Obama calling this political gimmickry, is not even lukewarm to this recommendation so it probably wouldn’t help. Barack Obama is calling for an additional $1000 rebate on taxes this summer which he says will have a greater impact for families. I haven’t deciphered exactly who will get the $1000 rebate but would imagine it would benefit those whom Barack Obama feels he most needs to win the election, i.e., more political gimmickry.

Unfortunately, the action most likely to drive down crude oil prices for the short term, opening domestic offshore areas immediately to exploration and drilling … and I’m not talking about ANWAR …, just won’t happen.

So, we’re stuck with astronomical crude prices which are being trailed by rising gasoline prices. Barring crude prices rising above $120 a barrel, currently trading around $119 a barrel this morning, gasoline and diesel prices will peak in late June or early July. Gasoline prices have typically trailed about two months behind crude oil prices.

The ripple effect of the financial crisis that many have been concerned about will be nothing compared to the ripple effect of the rise of crude oil from $90 a barrel to $120 a barrel in the past three months … a 33% rise and the doubling, 100% increase, in the price of crude oil from last summer. That’s right. The price of crude oil has doubled since last summer … and Congress has slept.

Democratic leaders like Nancy Pelosi and Harry Reid will blame it on President Bush … who frankly hasn’t shown much if any leadership in this area … but neither have they. And, they do control the Congress, don’t they?

I remember the Arab OIl Embargo of 1973 when the price of crude oil went up 50% overnight. Now, it’s doubled in less than a year and everyone is sleeping. So much for leadership.


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