Consumers would pay for oil taxes

May 18, 2011 • Editorial

It’s a truism that businesses don’t pay taxes, people pay taxes. Increasing the tax burden on businesses inevitably leads to higher prices for consumers, as the cost of higher taxes is passed along just like any other increase in operating expenses. So be wary of the effort by Democrats to strip away tax credits from oil companies. Oil company executives were hauled before Congress on Thursday, with the implied threat of losing roughly $30 billion in tax breaks enjoyed by the industry.

While killing the tax breaks [auth] makes for good politics, it’s reckless policy. Driving up operating costs for the oil companies ultimately will result in higher prices for gasoline and nearly every other consumer good, including heating fuel. The largest tax credit enjoyed by the oil industry is one also extended to every other manufacturer.

Adopted by Congress in 2004, it was designed to ease the burden of an onerous 35 percent corporate tax rate on a struggling sector of the economy. It costs taxpayers about $18 billion a year. Dumping that tax credit may not be a bad idea — but for everyone, not just oil producers. Getting rid of most selected tax breaks — including most energy credits for things like windmills and ethanol — in favor of a lower corporate tax rate would make America more competitive.

The oil industry also gets about $4.4 billion to encourage domestic exploration. With the Obama administration already squeezing development of at-home oil resources, further discouraging domestic production would seem a poor idea, and again one that would likely drive up prices.

Everyone is frustrated with the soaring cost of gasoline and other petroleum products. There’s probably more the oil industry could do to keep prices in check.

But singling out the industry for punishment — when Washington policies, including tough new limits on production, restrictions that keep refineries from expanding as demand for gasoline rises, and fuel blend mandates that kick in each summer, also play a role in rising prices — is unfair and in the end will hurt consumers.

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