Doesn't the oil and natural gas industry receive special subsidies?
No. The oil and natural gas industry does not receive targeted taxpayer subsidies or credits. It uses business tax deductions, like the one for intangible drilling costs, which are the same deductions used by other businesses and industries.
Even so, in 2011 the industry still paid an effective income tax rate of 40.6 percent, compared to 25.1 percent for other S&P Industrial companies.
Imagine a research company working on a new medicine that may be successful. A number of the company’s business expenses qualify as deductions lowering its tax liability. When a company’s research and development costs are deductible, important health research is conducted, suppliers continue to fund jobs and America benefits by gaining scientific knowledge and perhaps a life-saving drug.
Similarly, in the energy business, drilling is an uncertain activity requiring significant outlays for site preparation, equipment installation and other costs. Being able to deduct these costs isn’t a government subsidy or handout. Like deductions for R&D costs, the deductibility of intangible drilling costs helps to:
- Continue the search for more oil and natural gas;
- Keep workers on the payroll;
- Drill more wells and hire more workers;
- Provide affordable energy to American consumers.