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American companies get stiffed while Hugo Chavez gets a tax break, courtesy of the US Congress

March 4, 2008

At the end of last week, the House passed an energy bill that stripped $18 billion in tax credits for research and exploration from five “major integrated oil companies” (Exxon, Chevron, BP, Shell and ConocoPhillips).

Believe it or not, that’s the good news.

Given that, I’ll bet you’re wondering what the bad news must be. Well, it’s simply this: Citgo, which receives all of its oil from Venezuela’s state oil firm and its dictatorial leader, Hugo Chavez, was exempted from the tax hike. Under HR 5321, Citgo gets to keep the 6% tax deduction for domestic manufacturing that its fellow Big Oils lose because – get this -- it doesn't drill for its own oil, and it gets its oil from outside the United States.

Economically speaking, this bill will – as any high school Economics student (well, at a private school, anyway) could tell you – have an expressly negative effect on America’s fuel industry – and on its economy as a whole. In the war to “end America’s dependence on foreign oil” that the Democrats continually claim to be fighting, they’ve given some major points to the other side here.

First, by increasing taxes on Big Oil, Congress has stripped these companies of cash needed to develop new sources and technology. Though their profits are what makes the nightly news, these large “integrated oil companies” are also the biggest spender on exploration and R&D in the world. By taking that tax hike straight out of their cash incentive to perform R&D, they’ve ensured that the first cost-saving move by the companies will be to scrap that search for new sources and technologies.

Second, no company or group of companies is simply going to “eat” an $18 billion tax hike; instead, these increased costs will be passed straight on to you and me at the gas pump. When those prices do go up – and they will – I fully expect to hear Democrats on television and on the floor of the House railing against the eeeeeevil corporations that form Big Oil for their eeeeevil “price-gouging” tactics. Ah, the benefits of being in a position of nearly unlimited power, and having a largely ignorant public to preach and to pander to – one can feel free to use their legislative ability to create all kinds of bad situations, and then turn and place the blame for them squarely on the victims of your own legislation that created the situation in the first place. I guess it plays well in New York or in Seattle, anyway.

Finally – and here’s the biggie for the party that has spent an inordinate amount of time the last few years condemning companies for “outsourcing” and for daring to take some of their operations abroad – this legislation gives American oil companies long-term incentive to relocate their operations outside of the U.S., so as to recoup the 6% tax break they lost last week and to match Hugo Chavez’s comparative advantage.

In summary, the Democrats – unsurprisingly – passed a bill which goes against everything they claim to stand for (except for penalizing the pants off of Big Oil just because it exists) by (a) encouraging “outsourcing,” (b) penalizing “working families” by making them pay more at the gas pump, (c) stifling the research and development necessary to help lessen our dependence on foreign oil, and (d) giving major tax relief to an avowed enemy of the U.S. and its allies, Hugo Chavez, while revoking American corporations’ access to that tax relief. Pretty standard stuff, there.

I fully expect to hear them grousing about the effects of their legislation within months, while carefully avoiding the apportionment of blame where it belongs: with those who passed this misguided “poison pill” of a bill.

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