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I find characterizing amortization schedules for high-capital-investment industries as “subsidies” very frustrating. This situation doesn’t arise because the go

• least 4y ago
  Do these subsidies go exclusively to unestablished energy firms trying to enter a market that has an unreasonably high capital requirement or are they going to massive energy corporations that can front the cost?
• DubiousPusher 4y ago
  Maybe I'm not understanding this due to the jargon but the amoritization schedule adjustment is just one part of this. It looks like there are a bunch of genuine subsidies affected here too.
  • culi 4y ago
    Not only that, it's actually INCREASING the amortization schedule (for geological and geophysical expenditures) from 24 months to 7 years. So not only is the comment misleading, it's straight up wrong
    • DubiousPusher 4y ago
      Ok, as I understand, because there is an annual cap on amortization, this would mean you can effectively write off more of the investment.
• kwhitefoot 4y ago
  Does someone building a chip fab get the same help?
  • ChrisLomont 4y ago
    They tend to get lots of other tax breaks, including some that affect oil (and any manufacturing plants).
  • legitster 4y ago
    Yes.
  • IncRnd 4y ago
    Yes.
• radicalbyte 4y ago
  It should die for any new capex as we shouldn't be building any more Oil/Gas capacity, that money should go to renewables.
  • TEP_Kim_Il_Sung 4y ago
    What sort of renewables? A lot of them rely on oil/gas; Wind turbines, for example, are made with synthesized laminates and glues, use grease and oils to operate, and require large fleets of diesel trucks to assemble and maintain.
• lordswork 4y ago
  Thought experiment: If these "amortizations schedules" didn't already exist, would there be any chance we would introduce them today, given how profitable and successful oil and gas businesses are and most certainly would still be without these subsidies?
  • megaman821 4y ago
    Yes, or we would build less things like battery factories that can take up to four years to fully ramp up.
  • IncRnd 4y ago
    Of course. Everyone in every industry and most personal tax forms spread out the costs of assets over the lifetime of the assets. Thought experiment: What do you think would happen if people and companies could not spread the costs of their assets out over time?
    • ElevenLathe 4y ago
      They would have huge losses in the years that they invested in things, and huge profits in the years the investments paid off. This might result in more or less tax revenue depending on exactly how the rest of the tax code is structured (or restructured).
      • twicetwice 4y ago
        Which would mean that only people/companies who can afford to weather huge losses (potentially for several consecutive years) are able to enter capital-intensive sectors, providing massive moats to incumbents in those sectors and even more advantages to people who are already wealthy.
        • ElevenLathe 4y ago
          Right, but isn't this good when we are talking about fossil fuel companies? Fair competition drives down the price of fossil energy, while our goal as a civilization should be to raise the price as much as we can stand (to infinity if possible!) so that we don't cook ourselves. You can therefore make the argument (though I don't agree with it myself) that subsidies to big oil that reduce competition from upstarts is, in a twisted way, a climate-positive policy. This of course fails because subsidizing big, publicly-traded oil companies reduces their cost of capital. This causes rational capital allocators to rationally invest in fossil fuel exploration, resulting in more carbon being dug out of the ground and added to the atmosphere.
• Cthulhu_ 4y ago
  Which is fair, but oil and gas companies are some of the wealthiest companies around, they don't need government support to make new investments. That would be socialist; why can't they stop going to Starbucks and just pull themselves up by the bootstraps?
• clairity 4y ago
  depreciation is certainly a subsidy to capital, which is entirely unnecessary and distorts markets by upsetting the pricing mechanism. financial firms will happily provide upfront capital to any future profitable project.
  • alvah 4y ago
    "depreciation is certainly a subsidy to capital" Only if you twist the meaning of "subsidy" to mean "any level of taxation less than 100%". Which may be what you mean, but (correctly IMO) isn't generally a popular POV.
    • clairity 4y ago
      it's a carveout and preferential treatment of (certain kinds of) capital. that's a subsidy, no matter the mechanism of return.
• legitster 4y ago
  More than that... does it really do anything? Making companies spread their expenses over 6 or 7 years instead of 1 to 2 doesn't seem like a big deal if they are constantly investing in new facilities.
• megaman821 4y ago
  I remember last time a looked into this is that there are really no tax subsidies that the oil and gas industry gets that are unreasonable. Absolutely every industry with high CapEx font-load their amortization. It is the non-tax subsidies that add up. The US' military interest in the Middle East seems to be entirely based on the oil reserves in the region. How much less oil would be pumped with warring countries and unstable regimes? Also, oil companies largely don't pay for the environmental damage they do. If burning oil left a stinky purple gas instead of an invisible gas, they would be paying far, far more to stop it or get rid of it.
  • dpkirchner 4y ago
    > Also, oil companies largely don't pay for the environmental damage they do. This is possibly the largest subsidy given to energy companies. Maybe the damage they do to human health is larger.
  • nradov 4y ago
    US military involvement in the Middle East is hardly a subsidy to the oil and gas companies that would be impacted by this Act. Most of the oil and gas companies in that region are state owned with Aramco being the largest by far. They aren't subject to US laws or taxes. And they don't even export much to the US. Hypothetically, if an armed conflict shut down Aramco production then US oil and gas companies would actually make more profit. I do agree that allowing oil and gas companies to avoid paying the full costs of environmental damage is effectively a form of hidden subsidy.
    • Spooky23 4y ago
      It’s all connected. The conflict in Ukraine means my heating bill in NY goes up 40% this winter.
      • nradov 4y ago
        Passing this Act wouldn't make your heating bill any lower.
      • 4y ago
• Al-Khwarizmi 4y ago
  A subsidy is just a benefit given by a government for public interest reasons (in the view of said government, which may or may not match yours), so I don't see why what you said would prevent these from being subsidies. Correct me if I'm wrong, but you speak as if "subsidy" were a derogatory term, a word associated to wasteful ideas that cannot be applied to something that you consider necessary. That's a highly ideological view, not an objective view of the term.
  • legitster 4y ago
    > A subsidy is just a benefit given by a government for public interest reason Amortization is a bookkeeping concept that most industries get to control. The government would be forcing companies here to change how they do their bookkeeping to (theoretically) extract more tax from them specifically. In this case, the government is not currently giving them a benefit, it's taking away a right most other industries have. Otherwise, I would have to believe that any tax rate under 100% is a subsidy.
    • treis 4y ago
      This has it backwards. Amortization arises from the decline in value of capital goods through their usage. Say you buy a delivery truck for 100k and after a year of deliveries net a cash profit of 80k. You didn't actually make 80k because your 100k truck is worth less after 1 year of wear. So the question is how much? You'd like to say it's worth 80k less so your net profit is 0 and you don't pay taxes. The tax man wants it to be 0 or at least accurate so you pay the taxes you owe. To forestall this sort of back and forth the government has set standardized amortization schedules. It says that first year trucks decline 35% in value, second year an additional 25% and so on until it's 0. So that's why we have standard amortization schedules. The policy implications come into play when you set those schedules. If you want businesses to buy more trucks you allow them to amortize them faster so that they are cheaper when accounting for tax implications. If you don't want them to buy more trucks you slow it down so that businesses pay more taxes sooner which makes them more expensive. If oil companies are getting a faster than warranted amortization schedule then it is a tax subsidy.
• kubb 4y ago
  So you're telling me they repay everything once their assets become productive?
• patrickthebold 4y ago
  Don't we have a whole private financially industry for raising capital?
  • pastacacioepepe 4y ago
    Basically. Or if the business is too important for the nation then nationalize it.
• geysersam 4y ago
  I'm finding this argument unconvincing. Don't we have banks and insurance companies for this? Is it not the purpose of the capital market to evaluate large risky investments?
• JustSomeNobody 4y ago
  Refineries are meant to last decades. Can't imagine anyone thinking, "yeah, that's a good investment right now". It would take a pretty good size financial nudge from the government to get that going.
• culi 4y ago
  EDIT: actually I think you misunderstood the part about amortization entirely. It would actually INCREASE the amortization schedule from 24 months to 7 years... This seems like an unfair characterization of the bill. Most of the things listed are not amortization: - repeals the tax credits for producing oil and gas from marginal wells and for enhanced oil recovery; - repeals the tax deduction for the intangible drilling and development costs of oil and gas wells; - repeals percentage depletion; - repeals the tax deduction for tertiary injectant expenses; - repeals the passive loss exception for working interests in oil and gas property; - denies the tax deduction for income attributable to domestic production activities for oil and gas activities; - prohibits the use of the last-in, first-out (LIFO) accounting method by major integrated oil companies; - limits the foreign tax credit for dual capacity taxpayers (i.e., taxpayers who are subject to a levy of a foreign country or U.S. possession and receive specific economic benefits from such country or possession); and - expands the definition of crude oil for purposes of the excise tax on petroleum and petroleum products to include any oil derived from a bitumen or bituminous mixture (tar sands), and any oil derived from kerogen-bearing sources (oil shale).
  • talentedcoin 4y ago
    Yes, and an increase in the amortization period decreases the amount that can be written off for a project in any given year, which all else being equal means the company pays more tax.
• phendrenad2 4y ago
  Why does the government need to be involved at all? Surely some bank will happily lend money to 1,000 different gas drilling operations and take a cut of the successes and eat the losses. How is getting what amounts to a loan from Big Brother any different? (Because remember, another term for "covering frontloaded costs and recovering them on an amortized schedule" is "loan"!)
• Cryptonic 4y ago
  The problem is these should not be any more refineries, drill holes etc. The fossils should stay in the ground, the industry should not grow anymore int should shrink. But actually it looks like they only plan digging and pump up and let us burn every single bit just faster before climate conditions become to bad and disinformation no longer works as it did.
• snapplebobapple 4y ago
  Do you happen to know what each of the ten things mentioned are relative to the same subsidies in other industries? I am inclined to agree with you but I haven't done the due dilligence on what each thing is, why it makes sense o&g get it and where this policy is evenly applied to other industries based on, for example, high capex rather than because it is o&g explicitly. If you are willing, a sentence or two per point summary of what you discovered would really help me point out where the environmental nut jobs are being environmental nut jobs and where they have a point when talking to other people.