Depletion

The President today discussed the special tax breaks given to the oil companies and why they should be discontinued. When oil was first discovered in Texas it was a high risk business. A group would pool their money and go drilling. They were called Wild Caters and many went broke. Politicians, mainly from Texas convinced the government to offer special tax breaks to encourage more drilling. They set up a special type of depreciation called depletion allowance. It was based on the fact that it not only took a lot of risk and a lot of money to drill that even when you hit oil it would run out. This running out or depletion was the reason for the tax break. Texas oil millionaires also fought hard to maintain its tax concessions. The most important of these was the oil depletion allowance. It was first introduced in 1913 and allowed producers to use the depletion allowed to deduct just 5 per cent of their income and the deduction was limited to the original cost of their property. However, in 1926 the depletion allowance was increased to 27.5 per cent Members of both parties tried over the years to get rid of the depletion but powerful Texas officials were able to ward off their attempts. Several scandals erupted from Texas oil men providing large campaign contributions to maintain the tax breaks. In the 70’s because of the oil embargo President Carter came up with a three prong plan to solve the energy problem by reducing demand. First he got rid of the tax breaks for the oil companies which caused the price to rise. Second he pushed for more efficient home insulation and mileage standards. Third he pushed for alternative energy sources. In addition several new taxes were put on imported oil to raise the price. Over the past 30 years new legislation has been introduced and passed giving tax breaks back to the oil companies and this is what The President wants to eliminate. He wants to take that money, about 4 billion per year, and use it for green energy projects. All of this is very similar to the Carter program to reduce our dependency on oil. Let’s hope it works better this time.