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America is not broke. Our country is making great strides toward energy independence and to position itself as the world’s largest oil producer. For the first time since early 1995, U.S. oil production exceeded imports, and it will surpass Saudi Arabia’s output by 2020.
Obviously we need not keep funneling money into the oil industry that is getting by just fine without support. Instead, we should change the way we spend our money on energy to turn negative cash flow into positive, so we can spend that extra revenue on education, research and development, and infrastructure, that will further reduce the deficit over time.
Last year, President Barack Obama called for a reduction of $4 billion from the annual subsidies the United States provides oil companies. Just as a comparison, the effective tax rate for practically every type of corporate asset is 26.2 percent. Thanks to the government subsidies, oil interests pay an effective annual tax rate of 9.2 percent. This is at the same time Big Oil (Exxon Mobil, Shell, BP, Chevron and ConocoPhillips) posted profits of $19.5 billion total during the last quarter — not the last year. And this figure represents a downturn.
Not only that, but Big Oil gets its product from public land. Yet even as it reaps huge profits by exploiting public property, the royalties it pays to the federal government for this privilege has not changed in almost 100 years. The rate has stood at 12.5 percent for a century, a number that was set to help a newly born industry get off the ground. Today, the money brought in by Big Oil could let us raise the royalty rate to 50 percent without the industry even noticing the difference.
It makes no sense that we are still providing oil companies with billions in subsidies while they post massive profits. According to the Treasury Department, removing those subsidies would mean a drop in worldwide oil production by less than 0.1 percent. Yet at the same time, cutting those subsidies as proposed by the president would mean our revenues would go up by $30.6 billion over six years. That is in addition to the $4 billion we would not be handing out to oil companies any longer.
That is $5 billion a year in new revenue for us to invest in new technology and education initiatives. We should advance solar and wind technology to take the place of fossil fuels. We should enhance science and math education to cultivate the next generation of scientists and engineers who can make our alternate energy production even cheaper and more efficient.
The independent U.S. Energy Information Administration reports that the U.S. imports about 10.6 million barrels per day of crude oil. The estimated yearly cost for importing foreign oil is $433 billion. For every barrel we cut from our imports, that is money put back into the pocket of American consumers to spend here at home.
Developing green energy means we are serving our own power needs, and the money we do spend stays here instead of going overseas. Health care costs related to pollution from cars and smog total up to $120 billion a year. Last year alone, the United States spent another $100 billion fighting disasters related to climate change brought on by pollution. That is the real cost of our continuing reliance on oil.
Congressional Republicans are in an argument with Obama over federal budget issues that should be resolved without inflicting more damage to our fragile economy. Republicans keep insisting on an austerity program and tax cuts for the wealthy. However what is really needed are actual federal investments to close the innovation deficit. Contrary to Republican orthodoxy, no amount of tax cuts or a smaller federal government is going to meet the challenges of global competition in the 21st century. We have the means to stay competitive. We can use our oil boom efficiently and strategically to plan for the future, and manage our energy resources to make America stronger.
Rep Charles B. Rangel, D-N.Y., has served in the House of Representatives since 1971. He is a former chairman of the House Ways and Means Committee and currently serves as ranking member of the Subcommittee on Trade.