President Trump claimed earlier this month that his administration’s deregulation initiatives had already saved $180 billion and put thousands of dollars in the pockets of every family. Trump directed federal agencies to review, rescind or modify regulations deemed unconstitutional, burdensome or contrary to the national interest, and required them to eliminate 10 existing rules for every new regulation. The regulations that should be on the chopping block, Trump indicated, “impose significant costs upon private parties that are not outweighed by public benefits.”
A few days later, Lee Zeldin, head of the Environmental Protection Agency, boasted that his 31 initiatives constituted “the greatest day of deregulation our nation has seen,” saving Americans trillions of dollars in “costs and hidden taxes.” Echoing Trump, Zeldin singled out directives designed to “drive a dagger straight into the heart of climate change religion” and Biden administration efforts to “throttle the oil and gas industry.” The EPA, Zeldin promised, would reduce “the cost of living for American families, unleash American energy, bring auto jobs back to the U.S. and more.”
Notable for its absence, in an administration that publicly bemoans government policies that distort free-market capitalism, was any mention of eliminating or even reducing subsidies to fossil fuel companies.
In 1926, Congress passed and President Coolidge signed legislation that came to be known as “the oil depletion allowance.” Based on the premise that mineral deposits are finite resources that are depleted when they are extracted, the subsidies included deductions from taxable income for drilling-related costs — including labor, materials and some “intangible” expenses. It also allowed deductions of a fixed percentage of gross income from oil and gas properties, which, it turned out, could allow owners over time to deduct amounts greater than the capital used to acquire the asset.
“We could have taken a 5 or 10 percent figure” for the depletion allowance, Sen. Tom Connally (D-Texas) acknowledged, “but we grabbed 27.5 percent because we’re not only hogs, but the odd figure made it appear as though it was scientifically arrived at.” In 1937, Secretary of the Treasury Henry Morgenthau dubbed the legislation “perhaps the most glaring loophole in the tax code.”
Over the ensuing nine decades, Congress has tinkered with the percentages and the companies eligible to receive them, but the oil depletion allowance has remained largely intact — and especially lucrative for large oil companies.
Estimates of the windfall of all state and federal government subsidies to fossil fuel companies vary widely, but they almost certainly
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