Free «The U.S. Government Should End Tax Breaks and Subsidies for Oil Companies» Essay Sample

Tax break and subsidies are the tax deductions, granted in order to encourage a commercial activity. They are also supposed to promote the investment and creation of jobs.

In the oil industry, tax breaks and subsidies were implemented to encourage the exploration of oil. Back then, the oil industry was emerging and it was very risky to get engaged in it since the technology was not as advanced as it is now. The cases of failed exploration and dry wells were high and these subsidies enabled the companies to offset the arising costs. Over time, tax breaks and subsidies for the other activities within the oil industry were introduced. They covered the exploration, drilling, refining and trading of oil and its products. These tax breaks and subsidies still exist.

While they are well intended and are serving their purposes well, some are redundant as they date back to the times when the incentives for oil exploration made sense. The others are clearly derisory and make no sense at all (U.S. Energy Information Adminstration 2013).

These subsidies are funded from the national budget which is tax-payer’s money. This money could be saved, putting in mind the current economic state. To be clear, it is not wrong to give subsidies to the oil industry, it is just that it is not necessary currently. Some of the reasons why these tax breaks and subsidies should be repealed; 

Oil Subsidies Are No Longer Needed.

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Currently a barrel of oil averages at $100 and is projected to maintain for the fore seeable future. This is partly due to the instability in the Middle East and the rise in demand of oil. Though the situation in Middle East may improve, the demand is set to rise even more. This means that the $100 price for a barrel is going to grow even more (Weissmann). The Energy Information Administration predicts a barrel to go for $162 by 2040, as the blue line in the figure below illustrates (U.S. Energy Information Adminstration 2013). 

This means that oil companies will continue to make the profits from the oil industry. Currently, oil companies are raking in huge profits  as consumers continue paying high prices for oil products. Though it might be argued that after cutting the tax subsidies the oil companies will not be profitable enough, the cut would have a minimal effect on the oil industry in the United States. This is because the production of oil is steadily growing and whether there are subsidies or not, production will still continue propelled by the high demand.

The Money Be Put To Better Use

The subsidies, which are about $4 billion a year, are like peanuts, compared to the federal deficit. This amount of money a year, converting to $40 billion in ten years, could be invested into Medicare for seniors, where the financing has recently been cut. It also could be invested into Medicaid, which is essential in provision of medical services to the Americans, who are not able to afford private health insurance. It would go a long way in boosting the discretionary funds for the domestics programs. The money is much needed for supporting children, women, and other social services (Weissmann 2013).

The unemployment rate can be greatly reduced if this money is invested in job creation because it will lead to a better economy. Moreover, the rejuvenated economy will be a better use of money than investing it in oil companies, which do not really need it.

This would be to the benefit of the tax payers, who have to dig deep into their pockets to create the majority of the huge profits the oil companies are making by purchasing oil products and other related services (Weissmann 2013).

Investing in clean energy and environmental protection

Clean energy is the energy generated from such renewable energy resources as wind, sun and hydropower. They produce little or no pollution and there is no risk of running out of them. We need to invest in this clean energy, as it does not run out and does not contribute to the imminence of the global warming, nor does it degrade the environment.

The U.S. government aims at doubling its output of clean energy. By cutting tax breaks and subsidies for oil industry, the money can be reinvested in promotion and development of clean energy. This will lead to less reliance on fossil energy, which produces greenhouse gases and pollutes the air, water and soil, contributing to the global warming.

Thus, by repealing tax breaks and subsidies for oil companies and reinvesting the money into production of clean energy, the government will not only be conserving the environment but also cutting the reliance on fossil fuel and improving the economy as a result.

Environment protection is crucial as it ensures a health environment. Health environment means health living. Money taken from tax breaks and subsidies can be used in boosting the conservation and protection of the environment (West 2011).

It is not justifiable to continue giving the oil companies tax breaks and subsidies now that there are technological advances in oil exploration, processing and trade, unlike in the past when it was necessary for the tax breaks and subsidies. The billions of dollars in tax breaks and subsidies should be reinvested into other sectors, which really need the money. This might have the positive effect on the economy, despite how little this effect will be.


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