Here’s an Easy $100 Billion Cut

If the Republicans are truly determined to slash the budget and end government waste, they will start with two obvious and long overdue cuts: ending the web of tax breaks enjoyed by the rolling-in-dough oil industry and terminating the ethanol subsidy. Together these cuts would save up to $100 billion over 10 years, without hurting the poor and middle class or slowing the economy.

If only. The oil industry’s well-paid defenders — lobbyists and lawmakers in unison — will surely scream “tax hike” and claim that ending $4 billion a year in sweetheart subsidies will decrease production and increase prices at the pump. All of which is nonsense.

In 2005, with oil nearing $60 a barrel, James Mulva, the head of ConocoPhillips, told the Senate that his industry did not need these breaks to keep exploring for oil. They need them even less when oil is $100 a barrel.

According to the Congressional Research Service, ending the subsidies would have no effect on gas prices and a trivial effect on profits. The Big Five — Exxon Mobil, BP, ConocoPhillips, Chevron and Shell — reported combined profits of $35.1 billion for just the second quarter. Yes, you read that right.

The ethanol subsidies are just as unnecessary. The big one is a 45-cents-per-gallon tax credit that costs between $5 billion and $6 billion a year and goes not to corn farmers, as commonly supposed, or to ethanol producers, but to the refineries that blend ethanol with conventional gasoline. Which is to say, the oil companies.

Tax credits might have been useful when ethanol was in its infancy. But making corn ethanol is now a commercially viable technology, and one that is further supported by a 2007 Congressional mandate that requires refiners to blend up to 15 billion gallons of corn ethanol every year. In this sense, the subsidy is a bribe to oil companies to get them to buy and blend a product they are already required by law to purchase.

President Obama has called three times for ending the oil subsidies, and in May the Senate voted 52 to 48 to do so, not enough to overcome a filibuster. In June, the Senate also approved an amendment to a bill that ultimately went nowhere that would have ended the ethanol subsidy.

The roadblock is the House Republicans’ blind opposition to anything that could be characterized as a tax increase. Also nonsense. These tax breaks are merely subsidies under another, politically convenient name. It is time to end both. There is no justification for putting the interests of one industry above those of the country.

source: nytimes