Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge?

by Linda Beale
crossposted with Ataxingmatter

Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge?

The oil spill in the Gulf continues, wreaking hazard along the Gulf coast and threatening the Atlantic coastline as well. Birds, fish, sea flora and fauna are all threatened. Tourism and fishing face enormous economic costs. Our public lands will take years, perhaps decades, to recover.

Corporatism in all its ugly colors is on ready display in this disaster. The drilling used a single sleeve pipe instead of the stronger and less likely to leak double-walled version that is ordinarily used. They hurried the sealing of the well rather than cycle through the extra day necessary, worried about the fact that the well had already taken longer than intended, with each day costing thousands extra and the rig ready to move on. They apparently disregarded signs of leaking gas and rushed testing at the end. But worst of all, neither BP nor TransOcean was prepared to deal with a deep-water disaster. By BP’s own admission, it “didn’t have the tools” it needed to handle a deep-sea explosion, and obviously hadn’t invested the millions (billions?) it should have in research and experimentation on deep-sea disasters. It looks like profits was the only driving force–no matter what the cost in potential environmental disaster and human lives.

Yet we provide enormous breaks to natural resource extractive industries. Their responsibility for damages is limited. (Congress is considering changing this now–it should do so immediately, and hold BP and Transocean retroactively accountable for the full long-term cost of the damage they’ve done to our world.) We provide the resources at almost no cost–piddling royalties at best. We give layers of tax breaks, including the “percentage depletion allowance” that reduces the taxable income on the theory that eventually the company will have no more product and go out of business. Times, styles, customs and tastes change–but almost every company tied to a specific product will eventually lose out, and it would be foolish to provide that company a tax break for its expected future losses. Tax has always been related to current profits rather than life cycles. But not for the extractive industries.

BP, of course, faces potential criminal charges for its conduct. See this article in (June 3, 2010); US Opens Criminal Inquiry, NY Times June 1, 2010. Hopefully, the mere existence of a criminal investigation will act as a deterrent to other extractive companies, signalling the importance of preparation for dealing with potential environmental and economic hazards.

Changes, though, are necessary in the way we deal with extractive industries. Much greater transparency and accountability in the industry are required. Accountability requires more intensive regulation, and a sharper focus on compliance/enforcement within the agencies responsible. The Minerals Management Service is known for collusion with its overseen industries–this has to end. Salazar, Secretary of the Interior, is too much a friend of business and not enough a supporter of the environment–he should be replaced.

Transparency should include clear reporting on the way companies pay (or don’t pay) for the resources from which they profit, and how the compensation within the firm rewards those at the top and fails to ensure adequate focus on research to deal with problems. Senators Lugar and Cardin have suggested full disclosure by companies about amounts they pay to governments for access to natural resources (discussed as an amendment to financial reporm legislation). See Lissakers (from Revenue Watch Institute), The Cleanup Can’t Stop at the Shore, Huffington Post, May 18, 2010. Guess what–lobbyists object to disclosure, saying it would “increase operating costs and hobble competition.” Id. That’s bullshit. Those costs have to be accounted for in the companies’ financial statements and therefore whatever is spent (taxes, royalties, fees) is readily ascertainable by the companies. It is time that it was readily ascertainable by the American public.

Accountability requires more intensive regulation, and correction of the relationshipo between the Minerals Management Service and the industry, to ensure that companies at least do what is currently required of them by law. Companies should be held strictly liable–with joint and several liability among drillers, cementers, oil rig owners–for all cleanup costs as well as long-term environmental and economic damages. Congress should enact such a law immediately, with retroactive force covering BP, Transocean and Halliburton. We can no longer treat resource extraction the way we did in the 1800s–this is a different time, and the potential harms are much greater. Companies, not American taxpayers, have to assume the risks of losses in connection with their profit-making activities.

Perhaps, too, it is time to rethink our tax policy towards environmentally harmful industries to ensure that the industries take into account the cost of current “externalities” such as risk of lives and risk of harm to the environment and economy (as in the tourism and fishery industries being harmed by the Gulf oil spill). Obama called for rethinking the tax breaks for the extractive industries at a speech at Carnegie Mellon, noting that the catastrophic spil demonstrates the need to move towards clean energy. See Obama Calls for Roll Backs on Big Oil tax breaks, Apollo Alliance Daily Digest, June 3, 2010; Obama Calls for Rolling Back Oil Company Tax Breaks to Net Billions for Alternative Energy, Huffington Post, June 2, 2010.

What steps could be taken? Consider the following:

  • roll back current tax expenditures benefiting the oil and gas and other extractive industries
  • increase royalties for extracting resources from the US commons (including nullifying all current leases and requiring renegotiation based on environmental safety records and current expenditures for research and development to support life and environmental safety)
    enact a windfall profits tax
  • enact an “BEST” (bailout the environment and states tax) surcharge –a 5% surcharge on natural resource extracting industry companies’ financial statement profits as reported under GAAP or IFRS, whichever is higher, to be redistributed via funding of national and state parks and state coastline preservation efforts, protecting smaller businesses with revenue thresholds ($30 million or more, perhaps).
  • charge extractive resource companies an annually adjusted excise tax, calculated as a rolling percentage of the last three-years’ penalties plus three-years’ lobbying expenses, so that a company will tend to pay a higher tax when it expends more money lobbying and based on the number and severity of penalties incurred for safety and regulatory violations. BP had about $14 billion of profits in 2009 (see statement from BP), and spent $16 million in 2009 to lobby Congress (see For the first quarter of 2010, BP had profits of about 6 billion. BP has had a number of egregious safety violations, but fines are too small in relation to those profits–a “mere fly-speck on the company’s balance sheet.” Morse, BP Profits from Gulf Spill, Huffington Post, May 3, 2010. As Whatley has indicated, “when a corporation falls short of regulatory standards it does not do so accidentally. Rather, it is a calculated choice based on risible enforcement efforts and piddling penalties passed by legislators on the take.” See Capitalist Hagiography has little room for saints, Huffington Post, May 3, 2010. This excise tax would mean that the more money a company devotes to lobbying and the more piddling penalties that it is required to pay, the more real money it will have to cough up.

Some background about previous efforts to remove excessive tax benefits for extractive industries. Senator Robert CAsey (D-PA) in 2007 proposed an excess profits tax, when Exxon Mobil reported huge profits from the high price of oil. See Sen. wants to tax Big Oil’s ‘excess’ profits, AP, Apr. 26, 2007. The House in 2007 and 2008 at least had the gumption to vote to remove tax breaks (amounting to about $18 billion over ten years) that US oil companies enjoy. See House Repeals Tax Break for Big Oil,, Jan. 19, 2007 (noting that bill would have repealed the 2004 lowering of corporate tax rates for big oil and barred new federal leases unless they renegotiated problematic leases from 1998 and 1999 that did not require any royalties whatsoever for Gulf oil production, all measures that were opposed by the Bush administration, which didn’t think the improperly drafted leases should have to be renegotiated by Big Oil); House Votes to Tax Big Oil, Fund Renewable Energy,, Feb. 28, 2008. Action was defeated in the Senate, however, where Senate Republicans ensured that big oil would dodge the windfall profits tax bullet and continue to receive the many tax benefits in the Code. See Democrats’ Oil Tax Plan Fails in Senate Vote,, Jun. 10, 2008 (noting the GOP’s defeat of a Democratic energy package that would have rescinded existing tax breaks and imposed a 25% tax on “unreasonable” profits of the largest US oil companies–Exxon Mobil, Chevron, Shell, BP America, and ConocoPhilips–which made $36 billion in the first three months of 2008; the tax would have been avoidable if the companies invested in alternative energy programs or refinery expansions).