President Obama asks to repeal big oil tax breaks

President Barack Obama speaks in the Rose Garden of the White House in Washington, D.C. about ending oil subsidies. The president wants lawmakers to repeal $4 billion worth of tax breaks that oil companies currently get. How much of an issue are these subsidies?

Stacey Vanek Smith: President Obama took to the airwaves this morning and asked lawmakers to repeal $4 billion worth of tax breaks that oil companies currently get.

Barack Obama: Every time gas goes up by a penny these companies pocket another 200 million dollars in quarterly profits. Meanwhile, these companies pay a lower tax rate than other companies on their investments. Partly because we're giving them billions in tax giveaways every year.

A bill before the Senate would curb those subsidies. Here to discuss is Juli Niemann, an analyst with Smith Moore and Company in St. Louis. Good morning, Juli.

Juli Niemann: Morning, Stacey.

Smith: How much of an issue are these subsidies that the president spoke about?

Neimann: Well basically, this is overdue -- way overdue. The subsidies to the oil and gas companies were placed on when you had oil selling at $10 a barrel. Since it takes about ten years from the time you find it to the time you produce it -- to bring it to the gas station -- these were subsidies that were necessary, because it's a long-term drilling prospect.

But oil's no longer at $10 a barrel. At $110 a barrel, they don't need it. And the tax subsidy is only helping the shareholders as opposed to everybody in the United States who is paying high gasoline prices.

Smith: What about the argument that the subsidies encourage oil companies to explore more domestically?

Neimann: That was a very valid argument -- ten years ago. So using that same old saw is just completely ignoring what the current economic circumstances are. If you needed higher incentives, you would be companies out there pulling back on oil and gas exploration. Instead, we're operating at full-tilt. Virtually every country, every single nationality, every oil and gas company in the world is looking for new reserves because of the higher prices they're getting.

Smith: And how much of a difference would ending subsidies actually make?

Neimann: Well basically, it's not going to affec the consumer at all -- it's going to affect the taxpayer. Because that's $4 billion that basically we're giving every single year to the oil and gas companies. That's going to go a long ways in helping to balance the budget and reduce our record deficit.

Smith: Juli Niemann is an analyst with Smith, Moore and Company in St. Louis. Juli, thank you.

Neimann: You bet.

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.

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