On a conference call, Democrats Chuck Schumer and Bob Casey today released a report with Alan Krueger of Princeton University showing that the expiration of tax subsidies for the Big 5 oil companies will have no impact on gasoline prices. This is elementary when you consider the economics of the situation. The legislation Democrats have put forward would cancel $21 billion in subsidies over 10 years. The Big 5 oil companies made $35 billion last quarter. They simply would not feel the loss of these tax subsidies whatsoever, and if they “passed them on” to consumers, the resultant price increase could only be measured in fractions of a cent. And US jobs wouldn’t be affected either, Krueger said. “Because the U.S. is such a small producer, eliminating the subsidy would have very little effect in the long run and no effect in the short run on gas prices.”
The double-edged sword here for Democrats is that losing the subsidies would not lower gas prices either. It would have no effect one way or the other. To get at lowering prices, you have to get at the rampant speculation in the system through mandatory position limits from the CFTC, or possibly releasing some of the Strategic Petroleum Reserve. The options are somewhat limited because oil is a global market and global demand has increased. But even Exxon’s CEO said yesterday under questioning that under normal market conditions, oil would trade at $60-$70 a barrel, rather than the $100 it’s trading at now. So if you want to lower gas prices, you have to deal with speculation.
But if you want to end a massive corporate welfare scheme, you can cancel the subsidies. The reason to do it is that $21 billion is still a chunk of money that could be delivered to productive purposes rather than larded on oil companies so their dividends and CEO compensation can increase. $21 billion would pay for all the food stamp cuts that were passed in two bills last year, with billions left over.
This comes at a time when Republicans are demanding cuts to the budget. You can do worse than eliminating a subsidy that means nothing to oil companies but costs $21 billion.