Exxon Mobil: Do They Need This Much Help?

| May 20, 2011 | 0 Comments

I have to step up on my soapbox for a few minutes…

With gas hovering near $4 a gallon, a lot of hard-earned money is going straight out America’s collective tailpipe.  It’s really a frustrating situation.  And I’m as mad as heck, just like you.

But not about high gas prices…

What makes me fume is the staggering sum of tax breaks the US oil industry gets every year.

That’s right, the same industry raking in near record profits is also avoiding $4 billion a year in US taxes.  Through specific deductions, the oil industry avoids sending a hefty chunk of tax to Uncle Sam.

If it keeps happening, we’ll see $40 billion in lost tax revenue over the next decade!

Now before you label me a tax and spend liberal, listen up.

I’m not a Democrat, but I don’t consider myself a Republican either.  I’m more of an independent thinking, common sense kind of guy.  One who doesn’t subscribe to political agendas.

And my common sense brain is wondering…

Why does one of the highest revenue industries in the world need such generous tax breaks?

The oil industry and their supporters in Congress will tell you it’s to promote oil drilling in the US.

Gimme a break…

When $20 oil was the norm a couple of decades ago, companies may have needed incentives to drill.  But not when oil prices are consistently pushing over the $100 a barrel mark like they are now.

The high price of the resource they’re chasing is enough stimulus for oilmen to get out of bed in the morning.

And listen to this…

According to Representative Joe Barton of Texas, companies like Exxon Mobil (XOM) would go bankrupt without these tax breaks.

Huh?  A company that generated $370 billion in revenue and $30 billion in profits in 2010 will go out of business if they lose a tax break?

What a load of bull.

Now let me be clear…

And I’m not a bike riding anti-oil type of guy.  I use the products the oil industry provides just like everybody else.  I love my car and the fact I can get from point A to point B with little effort.

Heck, I don’t even blame high oil prices on the big oil companies like some conspiracy theorists do.  High oil prices are a result of a global supply/demand imbalance… plain and simple.

I even own a few oil stocks with huge growth potential.

But here’s the thing about these tax breaks…

They’re a subsidy.

And subsidies in the energy industry are a bad deal.  If the “free market” is to truly work, one industry can’t be subsidized while competing industries are subsidized at a lower level (or not at all).

For example…

The renewable energy industry (like wind, solar, and battery technology) pulled in $12 billion in subsidies between 2002-2008.  However, you’ll find the fossil fuel industry received about $72 billion in subsidies in the same time frame.

That’s six times the subsidies!

So think again if you believe the renewable energy industry is only viable because of the subsidies it receives.  I’ll go out on a limb and say clean energy wouldn’t even need subsidies if fossil fuels didn’t have such large subsidies in the first place.

The bottom line is this…

I’m not talking about raising taxes on oil companies.  I’m just saying the oil industry doesn’t need the tax breaks they’re getting now… there’s a big difference.

Taking away this sweetheart tax break won’t make much of a dent in oil industry profits.  And today’s high oil prices provide plenty of incentive for oil companies to do business in the US.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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