Senate Democrats have spent the week dismissing GOP claims that ending tax breaks for the oil industry would result in higher prices at the pump. Republicans argue that the big five would simply pass along those added costs to consumers.
“It’s Economics 101,” a spokesman for Speaker John Boehner (R-OH) told TPM earlier this week when asked for an explanation for the assumption.
Democrats brushed aside the claim as baseless, lame excuse for keeping the subsidies intact.
On Friday, the Democrats called in some economic expertise as backup to prove their point. Alan Krueger, an economic and public affairs professor at Princeton University joined Sens. Bob Casey (D-PA), chairman of the Joint Economic Committee, and Chuck Schumer (D-NY) on a conference call with reporters. According to Krueger’s analysis, ending tax breaks for big oil will do nothing to increase prices, or produce such infinitesimally small increases as to have no palpable impact whatsoever.
Krueger said U.S. oil only accounts for 10 percent of all oil traded on the international market, which ultimately determines the overall price and accounts for the fluctuations.
Furthermore, Krueger said, eliminating the subsidies on the top oil companies, which Democrats estimate would produce $2 billion per year in taxes and deficit reduction, will have no discernible impact on individual company choices to drill in particular areas or hire or layoff workers because profits are so large and the subsidies are so minimal in comparison.
“Because the U.S. is such a small producer, eliminating the subsidy would have very little effect in the long run and no effect in the short run on gas prices,” Krueger said.
Even if all of the subsidies were directly passed along to consumers, which Krueger doesn’t believe would happen, doing so would amount to less than a half a cent in price per gallon at the pump, he said.
“Believe me, the free market gives oil companies enough incentives to produce,” Schumer chimed in.
When faced with difficult decisions on whether to cut Medicare payments and Pell grants for college tuition in order to reduce the deficit or begin to find revenue streams such as eliminating tax breaks for big oil, Schumer said the choice is a no-brainer.
Schumer referred to comments Senate Minority Leader Mitch McConnell (R-KY) made yesterday — that he would not vote to raise the debt-ceiling debate without significant budget cuts and revisions to Medicare and Medicaid.
“Let me get this straight, Republicans plan to dismantle Medicare while refusing to end this tax subsidies for big oil companies?” Schumer asked.
