(the following are real numbers, although rounded and spun into my cute little dialogue format)

Mr. Government:

Mrs. Government:

Mrs. Government:

Mr. Government:

Mrs. Government:

Taxpayer:

Mr. and Mrs. Government:

real cash costs

Attention Taxpayers..even if you agree we should support alternative energy..wouldn't it make more sense to eliminate fossil fuel subsidies from the tax code first and then work from there? Instead we have just created competing subsidy progams.By the end of this entry you will see that oil production subsidies paid for with our tax dollars are very real. We also know from recent new that biodiesel, solar and ethanol incentives are very real too, especially as of late. As taxpayers, perhaps we even support the idea that we are helping encourage alternative energy. Better for national security, the environment etc.. But imagine you are a policy maker..lets call them "Mr. and Mrs. Government"How might that thought process go?we would like to encourage alternative energy, we have some extra revenue, or at least we can print more money, what shall we do?Well, we gave over $3 billion to the Big Oil over the last 5 years, so we will want to top that for the ethanol producers right? ...lets raise taxes or increase our debt and give $12 billion to Big Ethanol. That way they will be $9 billion ahead!Brilliant! and if we can't raise taxes we will just sell more Debt to China!I love you, i'm so glad we are helping save the world together.Me too, we are so smart!Uh...hold on there..can we do a math and logic check? The total taxpayer cost there is $15 billion and results in a $9 billion dollar alternative energy lead. Couldn't we just eliminate the $3 billion to oil, and give $9 billion to alternative energy, resulting in a $6 billion savings, with equal relative advantage to alternative energy?Equal realtive...huh? Um hold on, we need to check our campaign finances first.....we'll get back to you on that.I'm sorry, yes that example was arbitrary and capricious, and probably wasn't how the incentives all developed. But at any point in time, we could pull a move like "Taxpayer" suggests and save some cash right?Hey blogger...you didn't answer the question...are oil subsidies real?Oh yes, and here I will discuss just one of them.As a young accountant I remember studying tax code, doing tax returns and finding certain things kind of peculier. One thing that stuck in my head years ago was "percentage depletion" for oil producers, it may have even been on my CPA exam? I filed it in the old cranium and it keeps popping back into my conciousness every time I hear energy policy and taxation dicussed in politics and media. I decided to do some research and see if it is still around...yup. This MIT paper explains it very well, but here is a basic summary:If you own a farm and you sell $100K worth of milk, it's taxable revenue right. But you also bought a tractor, and paid employees etc... Thoseactually turn out to be $80K. Nice deduction...your taxable income is now ony $20K. "Percentage depletion" allows fossil fuel producers to deduct on their income taxes a set percentage of their revenue instead of their real costs. The kicker is, there is no relationship to the real cash costs incurred by that company. It's like the farmer getting a deduction of 90 cents on every dollar he makes, even though he only spent 80 cents on deductible expenses. In the oil industry, this excess of deduction over real costs is estimated at over $600 million/year. And that is just one of the many breaks fossil fuel producers get.Percentage depletion for the oil industry, tax credits and subsidies for biodiesel and ethanol. The best way to support alternative energy, may just be to end all subsidies across the board! With billions annually going to percentage depletion, farm subsidies galore, direct subsidy and tax credits for solar, biofuels..how the hell is anyone supposed to really know what the true cost of a gallon of ethanol or a gallon of unleaded really is? And if we factor in or account for the Externalized costs of oil(great subject), perhaps alternative energy doesn't even need subsidies at all?

Labels: Externalities oil subsidy ethanol biodiesel tax policy