President Obama is making good on his threat to sunset subsidies for big oil. In the 2011 budget he’s proposing to wipe out tax breaks and incentives to the tune of $36.5 billion dollars.

But before you get too excited – that’s over ten years. So it’s really just $3.65 billion per year, less than earlier estimates of $4 to $5 billion in cuts.

And any proposals will have to go through the House of Representatives – which has twice rejected similar efforts… when it was controlled by Democrats. Does it have any chance of passing now? That remains to be seen.

Big oil is doing just fine

In his State of the Union address, President Obama first laid down his marker:

“With more research and incentives, we can break our dependence on oil with biofuels and become the first country to have 1 million electric vehicles on the road by 2015,” Obama said. “We need to get behind this innovation — and to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to 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.”

He got a chuckle out of that line in the chamber, but it raised a howl from the halls of K Street to the plains of Texas.

The head of the oil and gas lobby, Jack Gerard of the American Petroleum Institute, argued that Obama has it backward – that his industry actually subsidizes Washington, through the taxes and fees they pay.

“The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day.”

(Hey, I subsidize Washington, too, through my taxes and fees! Does that mean I’m entitled to a share of that $3.65 billion?)

MyWestTexas.com said,

The plan is… bitterly opposed by oil and gas industry leaders, who say that any short-term gains in tax revenue would be offset by suppressed domestic energy production for years into the future.

U.S. Interior Secretary Ken Salazar laughed at that idea.

“All you have to do is to look at record profits in the oil and gas world over last several years and, in my view, you’re going to continue to see a great interest in oil and gas because it’s an essential part of our economy today,” Salazar told Reuters. “I think the oil and gas industry will do just fine.”

He added that the subsidies represent about 1 percent of expected domestic oil and gas revenues.

Setting up a compromise?

So what’s really going on here? Could it be that Democrats are finally learning the art of the compromise?

Over at least the past decade, Democrats have been lousy horse-traders. In a misguided effort to appear “moderate“, they start the negotiation from the center, while Republicans stake out a position in far-right-field. Republicans take “hostages” while Democrats make grand generous gestures. It may win you plaudits on the op-ed pages of the Washington Post, but it’s not a winning strategy to bring a cream pie to a knife fight.

That said, Obama may not be able to make good on this threat. At the end of the day, who cares if these cuts end up on the cutting room floor? For once, Democrats are taking some hostages. Republicans want to keep subsides for big oil? Then they don’t get to slash subsidies for green energy. Let’s chain the two together… and at the end of the day, we’ll have a compromise both sides can live with for a change.