Responding to recent outrage about”record high”petrol prices in the USA, and the “excessive profits” of Big Oil, John Stossel has written a well-argued, brief article called “Why is Profit a Dirty Word?

Hat tip to Tim Warner

John Stossel’s article begins by quoting Democrat Senator John Kerry saying “Oil companies in America are reporting record profits. Record profits.”

I couldn’t find this particularquote on the web or on John Kerry’s website, but there’s no shortage of John Kerry railing againstBig Oil’s …”windfall profits” … “price gouging”, and so on.

The Democratic Party has been pushing to end “billions of dollars in oil industry subsidies”. I need to find out more about this, but it appears that many of these so-called”subsidies” are actually just mis-namedtax breaks.

In this out-of-date National Center for Policy Analysis articlethe following points are made:

Critics claim that fossil fuel use in general and U.S. oil companies in particular are heavily subsidized and thus major beneficiaries of “corporate welfare.” However, income taxes aside, the oil industry, returns more money to the government than it gets in so-called subsidies. No renewable energy source can make this claim. For every dollar the oil industry receives, either directly or indirectly, the government gets three dollars in gasoline excise taxes over and above the amount earmarked for transportation.

Charges about oil company “subsidies” are based on estimates by the U.S. Energy Information Administration (EIA) reported in Federal Energy Subsidies in November 1992. But the EIA used selective information and a broad definition of “subsidy” that includes:

  • Tax provisions that allow recovery of production costs, which all businesses are entitled to;
  • The cost to the government of regulating the industry even though regulation of other industrial sectors is not counted as a subsidy to them;
  • Government financial assistance to low-income families for winter fuel.
  • And taxpayer subsidized insurance from the Overseas Private Investment Corporation for private (often risky) investments overseas — for instance in oil pipelines or mine development.
  • Even using this broad definition of subsidy, the oil industry pays far more to the federal government than it receives. In fact:The EIA calculated that excise taxes alone in 1992, for example, exceeded “subsidies” by $2.2 billion.
  • Using EIA’s definition, the total “subsidy” to the oil industry is four-tenths of a cent per gallon.
  • In contrast, the subsidy for ethanol, among the mostly heavily subsidized of energy sources, is 54 cents per gallon.
  • In addition, the tax exemption for ethanol is 30 percent higher than that for gasoline. Gasoline marketers pay 18.3 cents per gallon of conventional fuel to the government while marketers of the ethanol blend only pay a tax of 12.9 cents per gallon.According to the EIA report, subsidies to all energy sources amounted to about $8 billion a year, about two percent of the national energy bill. Oil accounted for about $1 billion of the total, about 12 percent, although it accounts for almost 40 percent of the country’s total energy.

Ronald J. Sutherland at Cato Institute offers this 2001 article, “Big Oil” at the Public Trough? An Examination of Petroleum Subsidies, in which he says:

Critics of the oil industry allege that the industry receives large and unwarranted government subsidies and that rival technologies, such as those for ethanol, renewable energy, and energy efficiency, deserve compensating government preferences.

The evidence indicates that, on balance, the oil industry is not a net beneficiary of government subsidies. The facts point in the opposite direction.

John Stossel has been doing very good work not only defending the Free Market, but also defending profit and that self-interest is not inherently evil.

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