Why are we Subsidizing Big Oil?

President Obama must be asking the same thing as he proposes cutting out approximately $36.5 billion a year in oil and gas company subsidies and tax breaks in his new budget, which is set to be released at the end of February. "We will not continue costly tax cuts for oil companies," president Obama said in his announcement of the proposed budget for the 2011 spending year, which starts in October.

This isn’t the first time president Obama has tried to cut off big oil. He has tried to cut the subsidies from the federal budget two previous times but was rebuffed each time as intense lobbying from energy producers and opposition from both sides of the aisle in Congress prevented it. The argument against cutting subsidies has been the same each time; ending the subsidies would damage the economy.

"This is a tired old argument we've been hearing for two years now," said Jack Gerard, president of the American Petroleum Institute, the oil and gas industry's main lobby in Washington. "If the president were serious about job creation, he would be working with us to develop American oil and gas by American workers for American consumers."

Mr. Gerard, in an interview with the New York Times turned the subject of subsidies on its head, stating that "The federal government by no stretch of the imagination subsidizes the oil industry. The oil industry subsidizes the federal government at a rate of $95 million a day."

The administration’s response has been that big oil has been raking in record profits for years (while charging $3.50 a gallon for a gallon of gas). Considering that Exxon Mobil’s profit for the last year came in at $124 billion, cutting a subsidy of $36 billion for the entire industry doesn’t look like it’s going force any of the members of big oil into bankruptcy. A second look at Exxon’s profit, put in the context of Mr. Gerard’s comment hinting that big oil needs to continue receiving subsidies to create jobs, seems a bit disingenuous but an extra $36 billion can buy a lot of toys.

Reuters reported that renewable energy will get a funding boost in the 2012 budget, including “$302 million for solar energy (up 22 percent), $123 million for wind energy (up 53 percent) and $55 million for geothermal energy (up 25 percent)”. If Obama is successful in getting the oil subsidy lifted, it would be encouraging to see more money allocated toward renewables. While the percentage gains are impressive, the money going to renewable energy sources would be less than 3% of the money saved from cutting the $36 billion subsidy.