Corporate Welfare

The GOP vs. Big Oil?

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Have Congressional Democrats convinced Republicans to give up on oil subsidies? Possibly! From The Hill:

With gas prices nearing $4 a gallon, Democrats want to exploit what they see as a small crack in Republican ranks on the issue of oil industry subsidies.

Last week, Speaker John Boehner (R-Ohio) suggested he is open to eliminating some oil industry tax breaks. But his office quickly walked back the comments. And House Budget Committee Chairman Paul Ryan (R-Wis.) has said he supports repealing the subsidies, signaling a split among top Republicans on the issue.

Though the measures to repeal the tax breaks stand little chance of passage in the House, the votes would put Republicans "in a bind" as the public shows "increasing anger" about oil and gas prices and oil industry profits, a House Democratic aide said.

Not surprisingly, I think Rep. Ryan has the better position on the policy merits. His stance is that special treatment for oil companies should go, but so should special treatment for other industries as well. "We're talking about reforming the safety net, the welfare system; we also want to get rid of corporate welfare. And corporate welfare goes to agribusiness companies, energy companies, financial services companies, so we propose to repeal all that," he reportedly said last week in a response to a constituent question about subsidies for the oil industry. In broad strokes, that's been Ryan's position for a while. "As long as big business was defending free markets, we didn't have a problem," he told me back in 2009. But he saw that changing, with industry looking to regulation and subsidies for success. 

I think he's basically right. There are plenty of good reasons to want to end corporate favoritism in the tax code, and not just for oil companies either: Congress uses complicated, narrowly-targeted tax breaks to pick winners in the marketplace. That forces companies to operate in a system that's based on competing for government favors, not actual customers, and that's at least some part of why, say, our energy market is such a mess.

Of course, betting your future on continued political favoritism has its dangers. And as we're now seeing, the same system that allows Congress to pick winners also allows them to pick losers whenever they think it's politically convenient. In the end, that's what this is: Big oil companies are no longer favored politically, and rising gas prices have turned some of the public against them. So a lot of members of Congress, Democrats in particular, want to make a big show of punishing the oil industry in public.

That's what makes the whole debate so frustrating. The current squabble over oil subsidies isn't really about "good policy"; the Democratic aide quoted in The Hill's story basically admits as much when he says it's about putting Republicans "in a bind." Instead, it's about political maneuvering: Democrats want to put Republicans on the spot, and force them to either vote to end the tax breaks or stand by an industry that the GOP has traditionally been quite friendly with. If this were really about zeroing out corporate welfare, we'd see movement on other fronts as well. But it's not, and that's why the debate is limited tax breaks for big oil, and not about other, more popular forms of corporate welfare, like ethanol and farm subsidies.