End Polluter Welfare Act would eliminate more than $110 billion in subsidies to the fossil fuel industry

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S. 3080, the End Polluter Welfare Act (EPWA), sponsored by Sen. Bernie Sanders (I-Vermont) and Rep. Keith Ellison (D-MN) was introduced on May 10.  If enacted, the legislation would eliminate more than $110 billion in US taypayer subsidies to the fossil fuel industry over the next ten years.  “Our legislation is the most comprehensive ever introduced,” said Sanders at a rally and press conference at the Capitol.  “It ends all tax breaks, special financing arrangements, and federal research and development funding. We ensure that never again can a company like BP take a tax deduction for money spent cleaning up its own mess in the Gulf of Mexico, and we close the loophole that lets tar sands oil pipeline operators avoid paying the oil spill cleanup tax.”

Earlier post:  Rally at US Capitol to end fossil fuel subsidies 

As of May 14, the bill has been referred to the Senate Committee on Finance.  You can check the status of the End Polluter Welfare Act (S.3080) here.  The full text of the bill should be available soon via the Congressional search portal THOMAS; at present, it can be found on Sen. Bernie Sanders's website.

The campaign surrounding EPWA is being organized by 350.org.  Momentum is in part coming from a recent NBC/Wall Street Journal poll that found Americans to be quite receptive to this kind of legislation, where 74% of Americans support “eliminating tax credits for the oil and gas industries.”  Over the coming months, 350.org will be running an ambitious campaign to support the bill and get every member of Congress on the record on the issue of subsidies.  “If we confine this effort to Capitol Hill, the fossil fuel industry will drown us in dollars. We’re going to take this fight to the districts around the country,” said May Boeve, Executive Director for 350.org.

According to the fact sheet accompanying the text of the legislation, fossil fuels are subsidized at nearly 6 times the rate of renewable energy.  From 2002-2008, the US Government gave the mature fossil fuel industry over $72 billion in subsidies, while investments in the emerging renewable industry totaled $12.2 billion.  Unlike renewable energy incentives, which periodically expire and require Congress to approve extensions, the fossil fuel industry has dozens of subsidies permanently ingrained in the tax code from decades of successful lobbying.

Sanders continued:

“Our federal government is set to give away over $100 billion in taxpayer dollars to the oil, gas, and coal industries over the next ten years. That is totally absurd.  When we have a $15.6 trillion national debt, we cannot afford it.  When the five largest oil companies have made over $1 trillion in profits over the last decade, they don’t need it.  When some of these same polluters have, in a given year, paid zero in federal income taxes and actually received IRS rebate checks worth million, they don’t deserve it. When fossil fuels are the number one source of human-caused GHG emissions, creating a planetary crisis of global warming that is already causing devastating extreme weather disturbances, we can’t ignore it.”

This document explains in plain language each section of EPWA, and details how much would be saved by implementing each cut.  In total, $113.355 billion in subsidies would be eliminated. Here is a selection of the bigger cuts:

Total oil and gas: $101.293 billion over 10 years.

  • Uncap 75 million for spill liability and 350 million for pipeline clean-up for tar sands, 33 USC 2704 (Sec 6) – current law limits economic damages for an individual offshore oil spill to $75 million, this section would make liability unlimited so that corporations are fully responsible for the damage they cause. It would also uncap liability for spill damages, currently at $350 million, for tar sands pipeline operators.
  • Eliminate manufacturing deduction, 26 USC 199(d)(9) (Sec 14, 19) - $11.883 billion (President’s FY2013 budget) – This provision, included in a 2004 law, allows oil and gas industry to claim they are ‘manufacturers’ and take huge tax deductions aimed at incentivizing manufacturing in America.
  • Eliminate percentage depletion, 26 USC 613(A) (Sec 14) - $11.465 billion (President’s FY2013 budget) – allows oil and gas companies to deduct 15 percent of their sales revenues to reflect declining value of their investment, without regard to the actual decline in value of their investment.
  • Eliminate intangible drilling oil and gas deduction, 26 USC 263 (Sec 14) - $13.902 billion (President’s FY2013 budget) – This provision allows oil and gas companies to immediately deduct the cost of things like wages and supplies, lowering their taxes, instead of normal process of deducting these costs over time.
  • Recover lost royalties on offshore drilling through excise tax (Sec 27) - $10.644 billion (Joint Committee Taxation estimate from 2007, likely a conservative estimate today) – In the 1990’s certain offshore leases were provided without requiring royalty payments from industry, as a means of encouraging drilling when prices were very low. These leases did not have a
    provision to institute royalties when prices moved higher, causing a significant loss of tens of billions to the taxpayer over the life of leases. This excise tax of 13 percent would ensure that corporations not already paying royalties pay their fair share.
  • Termination of last in, first out, accounting for fossil fuel companies, 26 USC Section 472 and 473 (Sec 20) - $29.512 billion (President’s FY2013 budget, assumes only 40% of LIFO savings comes from oil and gas companies, per statement from White House)– This provision allows oil and gas companies to minimize the value of their inventories for tax purposes
  • Dual Taxpayer Deduction, 26 USC 901 (Sec 23) - $10.724 billion (President’s FY2013 budget, U.S. Chamber of Commerce says “nearly all” dual capacity taxpayers are oil and gas corporations) – allows oil and gas companies that operate overseas to classify royalty payments to foreign governments as taxes, thereby reducing their U.S. taxes because foreign taxes, unlike royalty payments, are fully deductable.

Total Coal: $5.357 billion over 10 years

  • Eliminate advanced coal credits 26 USC 48A and 48B (Sec 14) - $2 billion (Joint Committee Taxation based on projection of 5 year estimate) – tax credits provided for construction of advanced coal plants.
  • Repeal percentage depletion for coal 26 USC 613 (Sec 21) - $1.744 billion (President’s FY2013 budget)– allows coal companies to deduct 10 percent of their sales revenue to reflect declining value of their investment, regardless of actual value of their investment.
  • Termination of capital gains treatment for royalties from coal, 26 USC 631 (Sec 22) - $.422 billion (President’s FY2013 budget)– this provision was enacted in 1951, and allows coal companies to treat income from coal mines as a capital gain, taxed at 15 percent maximum, instead of regular income which could be taxed at a much higher rate.

Other Fossil Fuel Subsidies Total = $6.705 billion over 10 years

  • Termination of DOE office of fossil energy R&D, 42 USC 7133 (Sec 8 ) - $3.68 billion (based on FY2012 DOE budget, over ten years, assuming no increase) – would eliminate taxpayer-backed research and development programs for the fossil fuel industry.
  • Rescission of funds for World Bank Financing (Sec 7) – would rescind existing funding, and impose a future prohibition, on using U.S. taxpayer funds to finance fossil fuel projects through the World Bank. In 2010 the World Bank provided $4.4 billion for coal financing.
  • Rescission of funds for OPIC and Export-Import Bank (Sec 12) – Would rescind existing funds, and impose a future prohibition, on using U.S. taxpayer funds to finance fossil fuel projects through OPIC and Export- Import Bank. In 2011 the Export-Import Bank helped to finance nearly $5 billion in oil and gas industry projects, and hundreds of millions for coal-related projects.
  • Eliminate Master Limited Partnerships for oil and gas and coal companies, 26 USC 7704(d)(1)(E) (Sec 14) - $2.4 billion (Joint Committee Taxation, based on projection of 5 year estimate) – would eliminate special partnership option for fossil fuel corporations and investors which is currently not available for clean energy companies.

The legislation is more comprehensive than President Obama’s proposal in his FY2013 budget that would have eliminated about $4 billion in subsidies to the oil industry in 2013, and about $40 billion over the next ten years.  The proposal would have eliminated some tax breaks, including a repeal of the credit for so-called intangible drilling costs. Savings would have been used to renew various alternative clean energy initiatives and reduce the deficit.  Of course, Senate Republicans quickly voted this measure down – an outcome that does not bode well for the fate of EPWA.

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