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Should US Government Cut Its $100 Billion Subsidy To Oil Companies?

Oil platform

The oil industry is a multi-billion dollar industry that has seen astronomical returns on investment as the price per barrel of oil continues to increase. But what many people don’t realize is that American oil companies are subsidized to the tune of $4 billion per year, a subsidy which increase to $100 billion over ten years when you include indirect subsidies from ethanol fuel integration as well.

And with the recent debt ceiling crisis revealing the necessity to implement widespread spending cuts, a critical observer may be curious as to why the American government is unable to cut the multi-billion dollar subsidies doled out to oil companies every year.

On the one hand, it seems like a no-brainer. The oil companies are rolling in cash as it is, and will probably continue to do so for some time. Why not slash their subsidies instead of cutting social programs for the poor and elderly. But on the other hand, the toxic political climate in Washington is preventing effective policy measures from passing, as both Democrats and Republicans dig their heels in along party lines.

And if we learned anything from the recent US debt ceiling crisis, it’s that party lines and political brinkmanship often trump cooperation over sound economic policy measures.

In particular, Republicans are determined to slash the budget and reign in government spending, yet when it comes to cutting subsidies to the oil companies, they scream “tax hike.” By claiming that oil subsidies make gas cheaper for the average American, they are able to imply that removing the subsidies is in effect, a tax hike. Of course, framing the issue around higher taxes also triggers certain thoughts in voters as well, because as soon as the debate becomes a question over taxes, voters predominantly favor lower taxes.

If the US really wants to propel itself out of the current crisis it needs to adopt new and innovative policy measures based around sustainability and clean technology. Reliance on fossil fuels for economic development will only further entrench the US in an old, unsustainable trajectory of growth.

However, it can only accomplish those objectives if the American government can leave behind vested interests and older ways of thinking.

Wishful thinking, I know.

Image CC licensed by Jerry Kirkhart

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