POLICY: Oil Profits Under Fire

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There is no question, however, that the industry benefits from unusual tax breaks, which should be coolly reexamined. In a sense, the write-offs subsidize not only the oil companies but also ordinary consumers of petroleum products: everyone who drives a car or heats his home with oil or gas. By granting the industry special tax benefits, the U.S. has shifted some of the cost of the nation's oil bill from actual consumers to the public at large. If the benefits were eliminated, oil prices would have to rise to cover the increased tax bill. One effect of the tax subsidy has been that energy prices have long been so low that the U.S. has become, as William Simon says, a nation of "energy wastrels."

The tax breaks are also poorly designed for the nation's current needs. The depletion allowance, for example, is more an incentive for oilmen to pump from existing wells than an inducement to explore for new sources of petroleum. A better way to encourage exploration would be to enact a tax designed to accomplish that specific goal.

Both Congress and the industry face some hard decisions. Congress has to choose between either rolling back oil prices or eliminating some oil tax shelters. It cannot do both and expect the industry to provide the nation with enough energy. For its part, the industry has to choose between retaining high prices and preferential tax treatment. It cannot expect the public to tolerate both. Most important in the months ahead, these choices are not likely to be made wisely by people who are looking for scapegoats instead of solutions.