There's always a catch. Except when there isn't.

If the modern market economy were a soccer game, the legal fictions known as corporations would be leading actual human beings 5-nil — because the refs let the corporations use their hands.  For example:

When the Deepwater Horizon drilling platform set off the worst oil spill at sea in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to significantly reduce its American taxes.  The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, maneuvers that also helped it avoid taxes.

Yet just try sticking a Dutch flag on your house & arguing to the cops that it voids U.S. drug law…

At the same time, BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.

With federal officials now considering a new tax on petroleum production to pay for the cleanup, the industry is fighting the measure, warning that it will lead to job losses and higher gasoline prices, as well as an increased dependence on foreign oil.

But an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process. (emphasis mine)

Oil gets subsidies out the wazoo.  An oil company & its cohorts, through negligence, causes the worst spill ever.  Still, even in this context, paying for the privileges they receive is beyond the pale.  However, note that they hint one of the results would be higher gas prices.  No one just absorbs higher taxes, they shift things around in response: we spend less on other stuff, they…well, they make other stuff cost more for us.  So, more accurately, no one absorbs higher taxes but us…

A common feature of artificially propped up industry is to claim their privilege serves a common good.  Agribusiness are masters at it, but oil is trying:

Oil industry officials say that the tax breaks, which average about $4 billion a year according to various government reports, are a bargain for taxpayers. By helping producers weather market fluctuations and invest in technology, tax incentives are supporting an industry that the officials say provides 9.2 million jobs.

“It’s practically a win-win, folks!  We get super rich, you get gas that, while not cheap, isn’t as expensive as we WANT to make it!  Quit whining!”

The rest of the article provides more details of just how deep & stubborn these subsidies are, but the gist is obvious: in oil production, there is no free market.  That’s not the main thought I had when reading it though.  Instead, I thought about how despite such glaring intervention in favor of fossil fuel, “green energy” is automatically assumed to require its own special subsidies & breaks out the ass to make a serious dent.  Why?  To put it simply, because with no subsidies either way there’s no sucker, and there always has to be a sucker…

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About b-psycho

Left-libertarian blogger & occasional musician.
This entry was posted in economics. Bookmark the permalink.

4 Responses to There's always a catch. Except when there isn't.

  1. Ricketson says:

    Hiya B,

    “Agribusiness are masters at it, but oil is trying:”

    I think that this shtick is a lot more widespread (and older) than you give it credit for. A lot of industries assert that their subsidies are good for everyone because they produce commodities that everyone uses (and are often inputs to other products).

    The energy sector is a prime example of this, and it is why talk of a gas/carbon tax is typically shot down in favor of subsidies or mandates favoring other energy supplies. Transportation and finance also benefit from this narrative…not only do they “create jobs” directly, but their services are integral to the business plans of many other companies.

    The only justification for these subsidies is the belief that markets are terribly fragile things that cannot function without constant cheap inputs to production. It is the belief of the Marxist and perhaps ironically, also many of the “pro-business” politicos.

    Of course, in the end we pay for all of these subsidies with higher taxes. Their only effect is to cause us to consume more goods and services than we would be willing to pay for in a free market.

    As the musicians say “They invite you out to ice cream, they insist you eat your fill, then they smile at each other and they stick you with the bill.”.

    http://defianceohio.terrorware.com/lyrics/#lambs

  2. b psycho says:

    The only justification for these subsidies is the belief that markets are terribly fragile things that cannot function without constant cheap inputs to production. It is the belief of the Marxist and perhaps ironically, also many of the “pro-business” politicos.

    I always found that level of agreement between the two amusing…

    Here’s a local version of the “our handouts are a public good!” game I’ve been following lately, in this case the Ford factory location in Kansas City:

    Ford Tax Incentive Package Stalled in Missouri Senate
    KCBJ’s ongoing coverage: Missouri special session, Ford incentives

    They’re going to stop production of one model there, but said “y’know, if we could get a few million more in tax breaks…”. Jay Nixon actually called a special state congressional session over just THAT! Yet…they could take the break & do squat anyway.

    In the general idea of running a business most of us have in mind, you think about the environment for it before opening up, and if you feel like you can’t make money with it, you do something else. This endless rent-seeking carrot-and-stick approach is ass backwards.

  3. b psycho says:

    Right on cue, here’s WaPo’s business columnist, in the context of suggesting how Obama & big business can “patch things up” with a quote that just about says it all:

    Without retreating on other initiatives, the administration could also win back some business support by devoting more resources and high-level attention to winning those competitions for big new plants and research facilities that, increasingly, are winding up someplace else. Americans may be unaccustomed to presidents and Cabinet secretaries acting as glorified economic development directors, but in a globalized economy this is how the game is played and won.

    In other words “Government. Big Business. Symbiotic relationship! Suck it up & move on…”

  4. Ricketson says:

    Jeepers. I’d hate to see the Feds getting involved in the type of “economic development” competitions that state and local governments do all the time. It seems like just another way for big businesses to extract rents from the rest of society (using the state as the intermediary).

    My only comfort is that there must be some strong political or constitutional barriers to this behavior at the Federal lever. There’s nothing that politicians love more than to have their name on some big project, so the fact that the Feds don’t do this already suggests that something is stopping them.

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