More On Oil and Gas Tax Provisions with Deron Lovaas

In an effort to try to get more information on each issue, ChrossTalk will attempt to follow up on recent interview topics with other experts. We’ll be publishing these interviews as soon as we get them.

For more information about oil and gas subsidies, Chip talked to Deron Lovaas, Federal Transportation Policy Director, at the National Resources Defense Council. Here is a transcript of part of the interview:

Chip Lebovitz: The oil and gas industry defends their provisions with the statement that getting rid of the subsidies would lead to the industry cutting jobs, especially at a time of economic crisis like the moment. Does that worry you when supporting the end of these tax provisions?

Deron Lovaas: Well it’s hard to see how that’s the case, given how profitable this industry has been especially over the last decade when just the top 5 oil companies have taken in more than $850 billion dollars worth in profit. Projections show that oil prices remaining high for the foreseeable future, certainly higher than they were for much of the 80’s and 90’s. So this is a very profitable industry and projections show much of the same. I can’t help but think that now is the time to consider different treatment under the tax code given how profitable they have been and are projected to be.

Chip Lebovitz: Following up on that last question, if they are extremely profitable and we took the subsidies away, where should that money go – deficit reduction or other projects?

Deron Lovaas: Good question. First of all, as I understand it we are talking about according to Taxpayers For Common Sense about $80 billion worth of subsidies over the next five years. That’s quite a bit of money. Of course, in the context of the national debt, and deficit, it’s a chunk but it’s not a huge portion of that, so you can see where all of it might be fruitful devoted deficit and therefore debt reduction. However, you could also make the case that some of it should go to finance the construction and maintenance of transportation infrastructure. The federal gas tax hasn’t increased since 1993, and therefore there’s a lot of deferred maintenance. There are a lot of structurally deficient roads and bridges across the country. 70,000 bridges for example are structurally deficient. So some of this money could go to repair our crumbling infrastructure, which could help the broader economy in terms of immediate jobs created and long term GDP growth.

Chip Lebovitz: If the money could be transferred to transportation or infrastructure type projects, what do you see as the ideal situation in regards to the provisions?

Deron Lovaas: There is a transportation solvency initiative at the Carnegie Endowment for International Peace that just put forward a report, the “Road to Recovery,” that’s worth considering. That report was co written by Tom Ridge, former head of Homeland Security and a Republican, Bill Bradley former senator from New Jersey and a Democrat, and David Walker, former comptroller for the U.S and an independent. What they proposed is that the money go towards deficit and debt reduction, and then when deficit and debt is under control, so to say five or ten years from now, it be transferred over to the transportation program. In other words, you can think of it as a phased approach where it helps with our immediate fiscal problem and then it helps with our infrastructure problem.

Chip Lebovitz: Finally, one last question on a slightly different topic – at the moment, the market has determined that oil and natural gas are the most economically efficient forms of energy even though they come with the cost of negative externalities. Given the markets inability to support large amounts of clean energy, what can we do with the tax code to help encourage environmentally friendly policies?

Deron Lovaas: It makes sense to use the tax code to encourage the development and commercialization of alternatives, and at the same time their needs to be a sunset for such tax incentives. I think that’s one of the lessons that we can draw from these subsidies for very profitable and mature industries still being in place. Whenever these are put on the books, there should be a pretty strict sunset provision. So that’s the first thing. There should be preferential treatment for alternatives that are clean and renewable and will help to diversify our energy mix especially in the transportation sector.

The second thing that we need to take a look at is the gas tax, which has not been increased since 1993 and provides a much stronger signal for consumers and most of the rest of the developed world. But here, one could argue that it’s artificially low, based on the signal it should be sending consumers and based on the revenue needs of the transportation infrastructure program. We should think seriously about an increase in the gas tax.

Given the two different viewpoints ChrossTalk has received on the issue of oil and gas subsidies, we have invited both Brian Johnson and Deron Lovaas to sit down with us and participate in a dialogue about the issue for a future episode.

Want to read more by Deron Lovaas, check out his blog for the NRDC covering a vast expanse of transportation and energy issues. We’d obviously also like to thank Deron Lovaas for talking to us.

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