Trump’s funny deal with the oil industry

Trump’s funny deal with the oil industry
Trump’s funny deal with the oil industry

Trump reportedly made big promises to the fossil fuel industry in exchange for a small check for $1 billion. The most surprising ? There’s nothing illegal about it.

A small dinner was held on April 11 at Mar-a-Lago, Trump’s private club. More than 20 fossil fuel industry executives, including Chevron, Exxon and Occidental Petroleum, were reportedly in attendance. A party where we would have talked big money in exchange for nice promises. According to the Washington Post, Trump would have proposed that in exchange for a billion dollars in donations, he would cancel, if elected, the environmental regulations introduced by Joe Biden. According to The Guardian, he also promised to “increase oil drilling in the Gulf of Mexico, remove obstacles to drilling in the Alaskan Arctic and reverse new rules aimed at reducing automobile pollution”.

Numerous tax breaks for these companies

For the oil industry, this aid is necessary to guarantee continued investments and reliability of supply. For others, reducing these subsidies would improve air quality and generate revenue that would allow investment in slowing climate change. The former are visibly more listened to than the latter since last year, according to the IMF, subsidies for fossil fuels reached the record level of 7,000 billion dollars. Subsidies for oil, coal and natural gas cost the equivalent of 7.1% of global gross domestic product. This is more than for education (4.3% of global income) and almost two thirds as much as public health spending (10.9%). The subsidy problem is therefore global and some of the tax breaks for polluting companies have existed for decades. What sets Trump apart from the rest is that he has been particularly generous during his presidency. The U.S. oil and gas industry has benefited disproportionately from tax cuts. Measures which will not end until 2025 and which will therefore remain relevant if he is re-elected.

Between 10 and 50 billion per year

The cost of US subsidies to the fossil fuel industry is estimated to be between $10 billion and $50 billion per year. The reason the range is so wide is because the incentives extend across the entire U.S. tax code. These range from incentives for domestic production, to deductions and depreciation linked to foreign production and income, to approved accounting methods that can reduce the reported taxable value of assets.

Unlike Trump, Biden wants to eliminate tax exemptions and particularly long-standing incentives to help with oil and gas drilling. In a recent White House budget proposal, $35 billion in domestic subsidies and $75 billion in foreign fossil fuel revenues were targeted. These are all tax loopholes that could be blown if Biden is re-elected. And even if, in the event of re-election, Biden’s proposal has little chance of passing Congress, it represents a political signal from the White House.

Ethically questionable, but not illegal

A signal which gives a cold sweat to certain companies which would not hesitate to already launch negotiations for a possible extension of the Trump measures (see box). With this in mind, Trump’s deal would be a real deal for these companies, since this gesture would allow them to save no less than 110 billion dollars, according to The Guardian. That is to say a stake multiplied by 110. An option that is all the more conceivable because if Trump’s request is a little cavalier and very questionable on an ethical level, it would not be illegal, according to Politico.

The main Trump measures that the industry wants to maintain are the intangible drilling cost deduction and the depletion tax abatement. The first allows producers to deduct the majority of their costs for drilling new wells. It would amount to $10 billion, according to federal figures. According to the Joint Committee on Taxation, its removal could generate $13 billion over a ten-year period. The second measure recovers the costs of developing declining oil, gas and coal reserves. Ending it could generate approximately $12.9 billion in revenue over 10 years, according to the same committee.

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