5 Ways the Oil Industry is Misleading the American People

In advance of today’s U.S. Senate vote to repeal tax credits for the 5 largest and most profitable oil corporations, the American Petroleum Institute (API) launched another campaign to mislead consumers that closing tax loopholes for the oil industry will result in higher gas prices.

The print and radio ads, which ran in Missouri, Massachusetts, West Virginia, Virginia, North Carolina, Maine, and Nevada, tell voters to contact their US senators and urge them to reject new taxes that could raise gas prices.

As in previous PR campaigns the oil industry uses fear and dubious claims to scare consumers into supporting policy that is good for Big Oil and bad for the American people.

View the print ad 5 Reasons the API ad campaign misleads the American people:

1) The price of oil – not US corporate tax policy – determines gas prices

Repealing these special oil company tax breaks means the owners of the companies – shareholders for publicly traded corporations – pay those taxes. Oil companies won’t pass higher corporate taxes on to consumers in the form of higher gas prices. And repealing these special tax breaks won’t be a disincentive to produce oil in the US, as the high price of oil provides all the incentive oil companies need to drill. According to Energy Information Administration, the cost of crude oil made up about 76% of the cost of gasoline in December, 2011.[i] The remaining factors that determine gas prices are federal, state, and local excise and sales taxes on gasoline sales, refining profit margins, and distribution and marketing expenses.[ii]

Industry financial documents filed with the Securities and Exchange Commission, show the average cost to produce a barrel of oil was $11 in 2010. The average price these companies received for a barrel of oil was $72.[iii]

2) The measure the Senate considered would  also extend clean energy credits and reduce the deficit.

The Senate bill calls for using the tax savings -$21 billion – from repealing the giveaways to fully fund a number of critical clean energy incentives, including the extension of the renewable energy production tax credit, the efficient new homes tax credit and the efficient appliances tax credit. Additionally, this bill would extend the cellulosic biofuel producer credit, allow for the inclusion of algae in biofuel incentives and expand the investment tax credit to offshore wind. [iv]

Extending these credit would cost $11 billion. The remaining saves of $10 billion would go toward deficit reduction.

3) Oil industry tax credits have not lowered gas prices.

Some of the tax credits used by the industry have been in place since the 1910s and 1920s. One of the more significant credits, the Domestic Manufacturing Deduction, was amended to include the oil industry in 2004, even though nowhere else in the tax code is oil extraction considered manufacturing. These tax breaks have not suppressed prices. By 2008, prices had risen to an average of $3.26 per gallon and are climbing again despite oil industry incentives.

4) Oil industry cherry-picks data.

The independent analysis cited in the ad refers to a report authored by the Congressional Research Service.[v] The report examines the potential impact of the administration’s 2012 budget proposal regarding the oil and gas industry. Specifically, it reviews 12 provisions that would raise tax liability for the oil and gas industry. The Senate bill in question includes five of those provisions. Even so, the report concludes that  repealing the tax credits outlined in the proposed budget could affect gas prices, but provides no estimate of how much could be passed on to consumers.

A memo from the Congressional Research Service to U.S. Sen. Harry Reid (D-Nev.) on the exact tax changes proposed in the current Senate bill states, “If the proposed changes in tax policy result in increases in the price of gasoline, it would generally be through an increase in the price of oil. However, the price of oil is determined on world markets and tends not to be sensitive to small cost variations experienced in regional production areas. In the recent market environment, with the price of oil averaging approximately $90 per barrel over the period December 2010 through February 2011, and the current price over $100 per barrel, prices are well in excess of costs and a small increase in taxes would be less likely to reduce oil output, and hence increase petroleum product (gasoline) prices.”[vi]

5) High gas prices are a pain for many households, but are a gold mine for the oil industry.

The ad attempts to appeal to the plight of the family facing high gas prices, but high gasoline prices only make the oil industry more profitable. So if the Senate bill really would boost gas prices, why would the industry oppose it? In fact, this bill doesn’t have anything to do with gas prices. It is about the industry maintaining favored tax status to maximize profits that are used to buy back stock, issue dividends and pay well-heeled lobbyists to press the industry’s case before lawmakers.