Selasa, 26 April 2011

Record Oil Prices, Record Oil Company Profits, Put Oil Industry Tax Breaks In Question



As oil prices hit record levels, and five of the largest oil companies might report near record profits as high as 59% later this week, Washington will debate whether to extend billions in tax breaks to the industry in coming days. One of these tax breaks deals with the oil industry being able to write $780 million in tax credits the first year when they open up new drilling sites while all other American businesses must depreciate the costs of new tooling over a lifetime schedule of 15 years or more of service life.






Oil companies are also given an economic incentive of a 15% tax credit for resource depletion of any drilling site they have, as another incentive to drill more and seek more oil. However, it's not in oil's interests to have too much oil on the market as the price would decrease if the supply pool were larger.






Oil companies also able to take part in a domestic manufacturing tax credit that is intended to encourage manufacturing to stay in the U.S. and not emigrate jobs to China or some other foreign nation. Currently, the oil industry provides on the order of 9 million jobs in the U.S., however when the news hits this week of near record oil company profits as American motorists pay around $4 or better a gallon for gas, Washington legislators as well as the White House will feel pressure to eliminate $4 billion a year in oil industry tax breaks.






The current wave of high prices is especially driving inflation as food items are either increasing in price or else downsizing by as much as 20% to cover increased oil prices. If this rate of food price increases, by year's end it might take $300 to purchase what $200 would have bought at the beginning of the year before the latest wave of oil prices took effect.

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