The economy tanks, but oil companies make bank

Posted: Monday, February 18, 2008

I still can't get over the fact that ExxonMobil made $40.6 billion in profits in 2007.

While we were paying $3 a gallon, ExxonMobil was cashing in.

Even more galling, though, is the knowledge that ExxonMobil and other oil companies are still enjoying lucrative tax breaks and production incentives from our own government.

And worse still, they are benefiting from billions of dollars in subsidies for drilling on land that you and I own, as citizens.

Federal lease agreements negotiated a decade ago with the oil companies contained a loophole big enough to drive an oil rig through, as New York Times reporter Edmund Andrews has revealed. These agreements exempted oil companies from paying royalties on millions of barrels of oil they extract from federally owned fields.

Remember the apocryphal stories of welfare queens driving Cadillacs and cheating the government - and all of us? Well, everyone who got revved up by that image should be sputtering about this one. Big oil stands to save more than $12 billion because of those incentives and tax breaks, passed at a time when oil prices were low.

Last year, the Bush administration asked oil companies to voluntarily renegotiate their federal leases, and some have. But the big holdout was none other than ExxonMobil.

Some politicians have noticed this corporate welfare and called once again for imposing a windfall profits tax on their earnings. When Congress tried two years ago to pass a $5 billion windfall tax, President Bush and his Republican allies killed it.

Deciding what constitutes windfall profits can be difficult, says Jared Bernstein of the Economic Policy Institute, a liberal Washington think tank. And singling out the oil industry when others, like the pharmaceuticals, also reap enormous profits can be problematic, he notes.

Instead, Bernstein says the focus should stay on closing the loophole on oil royalties in those government leases.

"By stonewalling on the royalty payment issue, the oil companies are begging for a windfall profits tax," he says.

The Bush administration has been a good friend to the oil industry, so it's unlikely to push to renegotiate those leases as it limps into the final months of its term in office.

But that's no reason for Congress - and the presidential candidates - to ignore the billion-dollar welfare scam that big oil is running.

• Annette Fuentes is an adjunct assistant professor at Columbia University graduate school of journalism.

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