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The True Cost of McCain’s Oil Industry Subsidies for Every State

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NOTE: A previous version of this paper mistakenly said that John McCain intends to preserve "Last In First Out" accounting, a giveaway worth $4.3 billion over five years. All numbers have been adjusted to correct for this change.

Download the report (pdf)

Oil and gasoline prices are setting all-time records, helping the five biggest publicly traded oil companies in the world earn a staggering $148 billion in profits over the past year.[1] At the same time, the U.S. government continues to provide massive subsidies to oil companies.

These subsidies for some of the most profitable companies in the world, given directly and through the tax breaks, are a waste of taxpayer dollars and continue tax dollar investments in oil instead of shifting incentives to clean energy alternatives. Subsidies for the oil industry preserve our dependence on oil, which leaves our economy vulnerable to price surges, our security vulnerable to hostile oil-rich nations, and our climate vulnerable to greenhouse gas pollution.

If elected president, Sen. John McCain (R-AZ) would provide $39 billion in federal help for oil and gas companies over the next five years. Some of these subsidies already exist: McCain supports the continuation of many of the current subsidies, which will total $33 billion over the next five years according to a study by Friends of the Earth, "Big Oil, Bigger Giveaways."[2] While McCain would repeal some of these subsidies, he would also pass a corporate tax cut that would be worth more than $22 billion to America’s five largest oil companies over the next five years.[3]

These subsidies and corporate tax breaks would divert money away from much-needed investment in a serious long-term solution to the energy crisis. These same dollars could be spent investing in efficiency and alternative sources of energy such as super-efficient cars, wind and solar power, and enhanced energy efficiency, which would save American families money, create thousands of new jobs, and help power millions of homes with clean, renewable sources of energy.

This paper outlines McCain’s plan to expand these subsidies, demonstrates how that money could instead be invested in energy efficiency and renewable energy, and estimates how much of their tax dollars the citizens of each state can expect to spend on subsidizing the oil and gas companies over the next five years under John McCain.

The McCain plan

As president, John McCain would continue some of the largest subsidies for oil and gas companies and level a corporate rate cut that would save them additional billions.

The subsidies he would continue include the oil and gas depletion allowance, which allows "oil companies to deduct 15 percent of their sales revenue to reflect the declining value of their investment," an expensive set of tax breaks that treat oil and gas as "manufactured" goods.[4]

McCain’s campaign has promised to close many of the existing subsidies—though they have only released specifics to the The Washington Post editorial board and not on the campaign website— yet the subsidies and giveaways that McCain would apparently continue total nearly $17 billion.

John McCain has also proposed a sweeping reduction in the corporate tax rate, to 25 percent from 35 percent. This tax change would save America’s five largest oil companies $22 billion over the next five years.[5]

These existing and new tax breaks would together transfer nearly $39 billion from taxpayers to the oil and gas industry over the next five years in the form of subsidies and forgone revenues.[6]

Needless to say, these dollars could be put to better use.

Investments in home weatherization

Saving energy by using it more efficiently is often less expensive than generating more power. Weatherizing homes can cut families’ energy bills dramatically, reduce oil consumption, and reduce global warming pollution.

The money that would go to oil companies in subsidies, tax breaks, and giveaways under John McCain’s plan could be used to weatherize over 13.8 million American homes, saving each household an average of $360 dollars every year in reduced utility bills, and dramatically reducing energy usage and carbon emissions.[7]

Investment in clean and renewable energy

The taxpayer money that would go to wildly profitable oil and gas companies under John McCain’s plan over the next five years could also be invested in clean and renewable energy.

An investment of $39 billion over five years could build enough wind power plants to power over 6 million homes every year, based on estimates from an earlier analysis from the Center for American Progress.[8] An investment of this relatively modest magnitude in wind power could create over 46,000 new high-quality jobs.[9]

Similarly, the same money could be invested in enough geothermal power plants (which generate electricity from heat stored below the earth’s surface) to power over 9.7 million American homes,[10] creating over 120,000 jobs in the process.[11]

State-by-state analysis

Families in every state pay for oil subsidies. The tables below estimate how much the citizens of each state can expect to subsidize oil and gas companies over the next five years under John McCain, despite those companies’ record profits.[12]

Oil subsidies also represent a lost opportunity to promote the efficient use of clean, renewable energy. The tables describe alternative uses of these resources: the number of homes that states could weatherize, the number of households that could be powered by clean and renewable sources of energy, and the minimum number of high-quality clean energy jobs that could be created by such an investment.

View state by state breakdowns.

Conclusion

If elected, John McCain would preserve and create $39 billion in federal help to the oil and gas companies over the next five years. These same dollars could be better spent investing in efficiency and alternative sources of energy that would save American families money, create thousands of new jobs, and help to power millions of homes with clean, renewable sources of energy.

Download the report (pdf)

Endnotes

Center for American Progress Action Fund, "Big Oil Earned $236 Per American Driver In The Last Year," July 31, 2008, available at http://www.americanprogressaction.org/issues/2008/per_driver.html.

[2] Friends of the Earth, "Big Oil, Bigger Giveaways," July 2008. Available at http://www.foe.org/pdf/FoE_Oil_Giveaway_Analysis_2008.pdf.

[3] Center For American Progress Action Fund, "The McCain Plan to Cut Oil Company

Taxes by Nearly $4 Billion," March 27, 2008. Annual tax benefit grown with GDP over five years based on CBO economic projections available at http://www.cbo.gov/budget/data/econproj.shtml.

[4] Based on a list of his proposed tax break rollbacks published in The Washington Post and a list of giveaways from the Friends of the Earth Report. McCain’s plan available from The Washington Post, "The McCain Budget Plan," July 14, 2008. Available at . Full list of subsidies & descriptions from Friends of the Earth, "Big Oil, Bigger Giveaways."

[5] Center For American Progress Action Fund, "The McCain Plan to Cut Oil Company

Taxes by Nearly $4 Billion," March 27, 2008. Annual tax benefit grown with GDP over five years based on CBO economic projections available at http://www.cbo.gov/budget/data/econproj.shtml.

[6] Based on a sum of the above two estimates.

[7] Based on cost estimates from the Weatherization Assistance Program, the Department of Energy, and the Low Income Home Energy Assistance Program.

[8] Daniel Weiss and Alexandra Kougentakis, "Waitin’ On A Sunny (And Windy) Day," Center for American Progress, April 1, 2008. Alternative energy production estimates scaled up based on additional money available.

[9] Apollo Alliance, "Community Jobs in the Green Economy," 2007. Available at . Job estimates based on Apollo Alliance’s jobs/MW ratio applied to a low-bound capacity estimate for the new power plants.

[10] Daniel Weiss and Alexandra Kougentakis, "Waitin’ On A Sunny (And Windy) Day."

[11] Apollo Alliance, "Community Jobs in the Green Economy."

[12] Based on the portion of total federal income taxes paid by each state from the Internal Revenue Service. Data available here.

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