[1] The Environmental Costs of Transportation, 1992, p. 44.
[2] Just such a controversy arose not long ago between the Acropol Inn on Grand Avenue in St. Paul and its neighbor, Auto Clinic Inc., resulting in a lawsuit filed in Ramsey District Court.
[3] Another such industry is pharmaceuticals, which reaps substantial benefits from the possessions tax credit.
[4] This analysis does not include the subsidies to energy consumption generated through low-income home energy assistance programs. For estimates of these, see Energy Information Administration, U.S. Department of Energy, Federal Energy Subsidies: Direct and Indirect Interventions in Energy Markets, November 1992.
[5] We buy just over 17 million barrels of oil a day, 9 million of them imported. This translates into about 261 billion gallons of oil consumed each year. We consume about 116 billion gallons of gasoline each year. Energy Information Administration, U.S. Department of Energy, Monthly Energy Review, April 1996. The share of oil devoted to gasoline use is actually rising: just over the past decade, it has gone from under 40 to over 45 percent of total petroleum used. Energy Information Administration, U.S. Department of Energy, Monthly Energy Review, various issues.
[6] U.S. Bureau of the Census, Current Population Reports, series P25-1111, Series A State Population Projections; Statistics of Income Division, Internal Revenue Service, SOI Bulletin, Spring 1996.
[7] American Automobile Manufacturers Association, Motor Vehicle Facts & Figures, 1994, p. 33. Adapted from data provided by the U.S. Department of Transportation, Federal Highway Administration. These figures do not include military vehicles.
[8] Federal excise taxes are currently 18.3 cents per gallon of gasoline, of which 4.3 cents go into the general fund and the remainder into the highway trust fund. Minnesota excise taxes that are transferred to the state's Department of Transportation for the state highway trust fund equal 20 cents per gallon. In terms of total state and local taxes on gasoline (including excise and sales tax), Minnesota ranks just about in the middle of all states. See D.C. Department of Finance and Revenue, Tax Rates and Tax Burdens in the District of Columbia: A Nationwide Comparison, June 1995, and Survey of State and Local Gasoline Taxes, Minnesota House Research Information Brief, February 1994.
[9] Of course, most of us enjoy some tax preferences - the mortgage interest deduction, for example. Yet the benefits of these sorts of tax preferences are spread much more widely across people than the preferences concentrated in a given industry.
[10] Alternatively, less taxes for some might mean a greater budget deficit (and therefore higher taxes later) or fewer services provided.
[11] Jane Gravelle, Economic Effects of Taxing Capital Income, MIT Press, 1994, p. 54ff.
[12] Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 1988-1992, February 1987. For three reasons, one must take care in interpreting tax expenditure estimates. Certain provisions overlap, so double-counting is a possibility. This is probably not a major issue for tax expenditures related to petroleum. Not only might tax expenditures overlap, they do not include behavioral effects. That is, the data do not account for shifts in output generated by alterations in the tax code. Again, this is likely a minor matter here because the elasticity of demand for petroleum is inelastic (quantity demanded is relatively unresponsive to price), at least in the short-run. Finally, tax expenditures are calculated on the basis of current cash flows, rather than in present-value terms. In most instances, the differences in calculation are minimal. For tax preferences that generate benefits for a number of periods, however, one must use a present-value calculation to determine an accurate revenue-loss figure attributable to a given fiscal year. For the most part, I can rely on cash-flow numbers; for certain provisions, however, I report present-value figures.
[13] The Treasury Department's noted 1984 blueprint for tax reform is just one of many documents that have called for repealing the tax incentives enjoyed by the petroleum industry. Office of the Secretary, U.S. Department of the Treasury, Tax Reform for Fairness, Simplicity, and Economic Growth, November 1984.
[14] U.S. Dependence on Foreign Oil, Senate Hearings 104-21, Domestic Oil and Gas Tax Proposals to Increase Production, Senate Hearings 103-971.
[15] Tax expenditure data come primarily from Office of Management and Budget, Budget of the United States Government, Fiscal Year 1997, Analytical Perspectives, pp. 61-87. Naturally, certain people benefit from the subsidies: some benefits may flow to stockholders and executives; arguably, some may go to employees and creditors as well. Yet the salient point about subsidies is that they encourage more investment and activity in a particular enterprise than is economically warranted: on net, they cost society. The data reported here represent the net cost to taxpayers.
[16] Internal Revenue Code sections 611 to 613A.
[17] Internal Revenue Code section 29. The provision applies only to domestic production from facilities or wells in place before 1993.
[18] Statistics of Income, Internal Revenue Service, SOI Corporate Tax Return Source Books, 1991 and 1992 returns.
[19] New York Times, May 14, 1995, p. 1.
[20] Internal Revenue Code section 263.
[21] These numbers pertain to the present value of the tax expenditure.
[22] See particularly Louisiana Land and Expl. Co., 102 T.C. 21 (1994). Reported in Tax Notes, September 25, 1995, p. 1560.
[23] Internal Revenue Code section 43. Also see Code sections 193 and 263.
[24] Internal Revenue Code sections 901 and following.
[25] Not only can companies manipulate timing, they can take advantage of swings in exchange rates to minimize tax burdens. See Jenny Wahl, "Taxation of Foreign Exchange Gains and Losses and the Tax Reform Act of 1986," National Tax Journal, March 1989.
[26] Statistics of Income, Internal Revenue Service, SOI Bulletin, Winter 1995-1996, from pp. 99-104. These numbers are based on proportions of assets and of receipts.
[27] SOI Bulletin, Winter 1995-1996, from pp. 115-129. Foreign taxes paid, accrued, or deemed paid amounted to about $6.17 billion.
[28] See the protest from Texaco on p. 1327 of Tax Notes, Mar. 4, 1996. Treasury Department officials relayed much of the background information to me.
[29] In one recent suit, the IRS determined that Amoco had a $466.2 million deficiency for 1980-82. Amoco had claimed a foreign tax credit for taxes paid to Egypt; the IRS argued that the money had been funneled back through an Egyptian subsidiary as a government subsidy. The IRS lost. Reported in Tax Notes, April 10, 1995, pp. 452-54. In a suit from December 22, 1993, the Tax Court rejected the IRS's reallocation of income for Exxon. See Tax Notes, January 9, 1995.
[30] These numbers correspond to present value calculations.
[31] Statistics of Income, Internal Revenue Service, Corporate Tax Return Source Books, 1991 and 1992 returns.
[32] See testimony by Friends of the Earth, Domestic Oil and Gas Proposals to Increase Production, Senate Hearing 103-971, p. 171.
[33] Some have suggested that states also subsidize petroleum by imposing sales taxes on gasoline that are relatively lower than sales taxes on other items. Union of Concerned Scientists, Money Down the Pipeline: Uncovering the Hidden Subsidies to the Oil Industry, September 12, 1995. I could not find sufficient evidence to adopt this reasoning. See for example D.C. Department of Finance and Revenue, Tax Rates and Tax Burdens, and Survey of State and Local Gasoline Taxes, Minnesota House Research Information Brief.
[34] Monthly Energy Review, April 1996. Also see Congressional Office of Technology Assessment, U.S. Oil Import Vulnerability, 1991.
[35] Statement by Susan Tierney, Assistant Secretary for Policy, U.S. Department of Energy, U.S. Dependence on Foreign Oil, Senate Hearing 104-21; Energy Information Administration, Department of Energy, Monthly Energy Review, June 1996.
[36] States as well as the federal government attempt to protect valuable petroleum resources. States like Alaska and Texas require oil companies to pay royalties (in cash or in kind) and severance taxes, in part to slow down depletion. Yet calculating the value of extracted oil, particularly in Alaska where no on-site market exists, is often a matter of controversy. As a result, the amount of royalties and taxes paid may not fully compensate states for the loss of their resources.
[37] These figures estimate the cost to taxpayers of protecting petroleum. If oil companies instead shelled out protection money, they would probably be allowed to deduct at least part of their expenses from taxable income, just as any business might deduct insurance premiums or guards' salaries. If all such expenses were deductible and losses fully carried over, taxpayers would effectively bear 35 percent of these costs. (If expenses were high enough, companies would have to carry over losses to other years. Because carryover periods are limited, some losses might never be deducted. Taxpayers would then bear less than 35 percent of costs.) Existing costs of protecting petroleum reserves, relative to this "deductability baseline," therefore come to $17.3 billion to $46 billion per year. How plausible is this scenario? Oil companies would not be likely to hire guards to protect supplies, at least not to the extent that U.S. military forces currently do. Companies might, however, insure against some losses, either through third parties or on their own.
[38] Office of Management and Budget, Budget. The total Defense Department budget comes to over $263 billion in 1996. This figure does not account for emergency energy preparedness (about $150 million annually) nor international security assistance.
[39] Testimony by Joshua Gotbaum, Department of Defense, U.S. Dependence on Foreign Oil, Senate Hearing 104-21, p. 27. His Office has been abolished.
[40] See Persian Gulf War Veterans and Related Issues, hearing before subcommittee on oversight and investigations, Committee on Veterans Affairs, House of Representatives, June 9, 1993.
[41] This breaks down into $260 million for equipment and the remainder for active shore forces. Cost of War in the Gulf, hearing before the Committee on the Budget, House of Representatives, February 27, 1991.
[42] Congressional Research Service, The External Costs of Oil Used in Transportation, June 17, 1992.
[43] Earl Ravenal, Designing Defense for A New World Order, Cato Institute, 1992, p. 46, calculated the cost of maintaining a military presence in the Middle East at $50 billion. James MacKenzie, a researcher at World Resources Institute and frequent commentator on the social cost of petroleum, testified to the same number. The Environmental Costs of Transportation Energy Use, hearing before the subcommittee on the environment of the Committee of Science, Space, and Technology, House of Representatives, September 17, 1992. Edwin Rothschild, Oil Imports, Taxpayer Subsidies, and the Petroleum Industry, Citizen Action, May 1995, put the national security cost of oil at $57 billion annually. Also see General Accounting Office, Southwest Asia: Cost of Protecting U.S. Interests, August 1991. For a comprehensive analysis, see the 1994 report for the National Renewable Energy Laboratory, Fuel Ethanol "Special Studies" by Energetics, Inc. located at Website http://rredc.nrel.gov/biomass/doe/rbep/ethanol
[44] Joshua Gotbaum, Assistant Secretary for Economic Security, Department of Defense, estimated the incremental costs of the war at $57 billion. U.S. Dependence on Foreign Oil, Senate Hearing 104-21, p. 27. The Office of Management and Budget puts the cost closer to $100 billion or more. Update on Costs of Desert Shield/Desert Storm, hearing before the Committee on the Budget, House of Representatives, May 15, 1991.
[45] Testimony by Joshua Gotbaum, U.S. Dependence on Foreign Oil, Senate Hearing 104-21.
[46] Conversation with officials at the Strategic Petroleum Reserve Office, U.S. Department of Energy. Budget requests for maintenance for 1996 were $264 million. Office of Management and Budget, Budget. The original goal for the Reserve was 1 billion barrels, but we are currently depleting the Reserve rather than adding to it.
[47] The oil in the Reserve cost somewhere between $19 and $21 billion to purchase; its current market value (at just over $18 per barrel) is much less - about $10.5 billion. If the Reserve were sold and the proceeds invested at 7 percent, taxpayers would enjoy annual returns of about $724 million. At 10 percent, the amount would be $1,035 million annually.
[48] Office of Management and Budget, Budget.
[49] Reported in the Minneapolis Star-Tribune, May 14, 1995.
[50] Estimated by the Office of Underground Storage Tanks, Environmental Protection Agency. Also see Underground Storage Tanks, hearing before the subcommittee on energy and agriculture, Committee on Small Business, House of Representatives, November 18, 1987.
[51] The Washington Post of May 10, 1992, had a story about thousands of leaky gas and oil tanks in the D.C. area, for example.
[52] Conversation with environmental lawyers in San Francisco.
[53] Reported in the Minneapolis Star-Tribune, August 31, 1995, and May 24, 1995.
[54] Only Superfund retains some interest - Senate bill S. 2027 proposed a 5-year extension of Superfund; it has been referred to the Senate Finance Committee. One source at the Environmental Protection Agency estimated that the funds will pay for no more than 18-months'-worth of cleanup. They may not last that long: some Congressmen have suggested tapping the trust funds to pay for the general costs of government operations.
[55] Siamack Shojal, ed., The New Global Oil Market: Understanding Energy Issues in the World Economy, Praeger, 1995, p. 177
[56] The petroleum industry also enjoys exclusions or other special provisions in the Clean Water Act, the Clean Air Act, the Safe Drinking Water Act, the Hazardous Liquid Pipeline Safety Act, the Oil Pollution Act, and the Emergency Planning and Community Right-To-Know Act. Testimony by Friends of the Earth, Domestic Oil and Gas Proposals to Increase Production.
[57] Because of certain provisions our state probably is more successful at maintaining safety than others are. Minnesota's Office of Pipeline Safety is located in the Office of Public Safety and can quickly call upon other agencies in emergencies; in contrast, most such offices are located in Offices of Public Utilities. Also, Minnesota's Office is responsible for both instate and interstate pipelines; most states regulate only instate pipelines and must rely on federal officials to inspect interstate lines. About one-third of the state Office's budget is covered by a federal grant. Conversations with officials in Minnesota's Office of Pipeline Safety.
[58] For one account of the difficulties of establishing causation, see Jonathan Harr, A Civil Action, Random House, 1995.
[59] Testimony by Friends of the Earth, Domestic Oil and Gas Proposals to Increase Production, Senate Hearing 103-971.
[60] ABB Environmental Services, The OPA Liner Study, January 24, 1993, p. 57.
[61] Mark DeLucchi, Summary of Non-monetary Externalities of Motor Vehicle Use, Draft prepared for the Union of Concerned Scientists, October 1995.
[62] Legislation passed after the Exxon Valdez spill requires double hulls for new oceangoing tankers unless the Coast Guard finds a good alternative. Single hulls will be phased out in U.S. waters by 2015. Ships flying foreign flags are more prone to spill off our coasts. Eric Anderson and Wayne Tilley, "Oil Spills," Land Economics, May 1995,
[63] See National Oceanic and Atmospheric Administration, U.S. Department of Commerce, Assessing the Social Costs of Oil Spills: The Amoco Cadiz Case Study, 1983.
64 Anderson and Tilley, "Oil Spills," p. 216.
[65] DeLucchi, Summary
[66] Between 1983 and 1992, fires and explosions in U.S. oil refineries and petrochemical plants killed more than 80 workers, injured 900 workers, and caused the evacuation of thousands. Testimony by Friends of the Earth, Domestic Oil and Gas Proposals to Increase Production. Approximately 30,000 cases of accidental ingestion of gasoline occurred in 1987, according to the American Association of Poison Control Centers, with almost 30 percent being children aged 2 years or younger.
[67] A variety of cancer studies exist. See for example Myron Mehlman and Arthur Upton, eds, The Identification and Control of Environmental and Occupational Diseases: Hazards and Risks of Chemicals in the Oil Refining Industry, Princeton Scientific Publishing Co., Inc., 1994; Office of Health and Environmental Assessment, Environmental Protection Agency, Evaluation of the Carcinogenicity of Unleaded Gasoline, April 1987; Office of Research and Development, Environmental Protection Agency, Air Quality Criteria for Ozone and Related Photochemical Oxidants. Also see Environmental Criteria and Assessment Office, Environmental Protection Agency, Health Assessment Document for Diesel Emissions, 1990;.
[68] Office of Research and Development, Environmental Protection Agency, Air Quality Criteria for Ozone and Related Photochemical Oxidants, vol. 1, p. 3-63; Mackenzie et al., The Going Rate; David Greene and Danilo J. Santini, Transportation and Global Climate Change, 1993; Office of Research and Development, Environmental Protection Agency, Air Quality Criteria for Carbon Monoxide, December 1991, p. 6-9; and Office of Research and Development, Environmental Protection Agency, Air Quality Criteria for Ozone and Related Photochemical Oxidants, vol. 1, p. 3-63. See as well the testimony of Victor Rezendes, Director, Energy and Science Issues, Government Accounting Office, The Environmental Costs of Transportation, 1992, and testimony of Robert Sussman, Environmental Protection Agency, Global Climate Change and Air Pollutants, hearings before the subcommittee on health and environment, Committee on Energy and Commerce, House of Representatives, August 4 and October 26, 1993.
[69] Mackenzie et al., The Going Rate.
[70] See MacKenzie et al., The Going Rate, and testimony of James MacKenzie, The Environmental Costs of Transportation Energy Use, 1992.
[71] Reported in the Minneapolis Star-Tribune, August 31, 1995, February 4, 1995..
[72] See the legislative history to the Clean Air Act Amendments of 1977, and Lead Industries Ass'n v. Environmental Protection Agency, 647 F.2d 1130 (CD Cir. 1980), cert. den., 449 U.S. 1042 (Dec. 8, 1980)
[73] See In the Matter of the Quantification of Environmental Costs Pursuant to Law of Minnesota 1993, Chapter 356, Section 3, State of Minnesota Office of Administrative Hearings, Findings of Fact, Conclusions, Recommendation, and Memorandum, 6-2500-8632-2, E-999/CI-93-583, p. 24.
[74] Adapted from J.M. Adler and P.M. Carey, "Air Toxics Emissions and Health Risks from Mobile Sources," presented at the annual meeting of the Air and Waste Management Association, 1989.
[75] Myron Mehlman, "Carcinogenicity of Motor Fuels: Gasoline," in Mehlman and Upton, eds., The Identification and Control of Environmental and Occupational Diseases.
[76] P.L. Kinney and H. Ozkaynak, "Associations of Daily Mortality and Air Pollution in Los Angeles County," Environmental Resources 54, 1991, 99-120.
[77] Office of Research and Development, Environmental Protection Agency. For estimates of certain effects on agriculture, see the summary in Office of Research and Development, Environmental Protection Agency, Air Quality Criteria for Ozone and Related Photochemical Oxidants, July 1996, vol. II, table 5-38.
78 Mark French, Efficiency and Equity of a Gasoline Tax Increase, Paper #33, Finance and Economics Discussion Series, Federal Reserve Board of Governors, July 1988.
[79] UC-Davis researchers, reported in MacKenzie et al., The Going Rate. Mark Delucchi, as reported by the Union of Concerned Scientists, Money Down the Pipeline, estimated damages of gasoline to human health alone to be $42.1 to $181.7 billion a year in 1990 dollars.
[80] Mackenzie et al., The Going Rate, estimated that driving leads to 25 percent of carbon dioxide emissions. Others have estimated even higher figures. See for example the testimony of Howard Geller and John deCicco, The Environmental Costs of Transportation Energy Use, 1992, and the testimony of Robert Sussman, Global Climate Change and Air Pollutants, 1993. These experts estimate that transportation accounts for one-third of greenhouse gases.
[81] Union of Concerned Scientists, Money Down the Pipeline, Table 7 (converted to 1996 dollars).
[82] William Cline, Economics of Global Warming, Institute for International Economics, 1992. Also see Organization for Economic Cooperation and Development, Transport Policy and Global Warming, 1993, Global Warming, 1992, and Climate Change: Evaluating the Socio-Economic Impacts, 1991.
[83] The Intergovernmental Panel on Climate Change, Climate Change, the IPCC Scientific Assessment, Cambridge, 1990, recommended that global carbon dioxide emissions should be reduced by 60 to 80 percent in order to stabilize concentrations.
[84] Congressional Office of Technology Assessment, Catching Our Breath: Next Steps for Reducing Urban Ozone, July 1989.
[85] Congressional Budget Office, Energy Use and Emissions of Carbon Dioxide: Federal Spending and Credit Programs and Tax Policies, December 1990; Cline, Economics of Global Warming; Dale Jorgenson and Peter Wilcoxen, Reducing U.S. Carbon Dioxide Emissions: The Cost of Different Goals, CSIA Discussion Paper 91-9, Kennedy School, Harvard University (cited in MacKenzie et al., The Going Rate).
[86] Representative Henry Waxman has noted that the plans proposed to do this are largely a collection of voluntary measures without any real enforcement mechanisms. Global Climate Change and Air Pollutants, 1992, p. 97. Waxman was the chair of the subcommittee.
[87] Global Climate Change, 1993, p. 42.
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