05/13/2011 02:20 pm ET | Updated Jul 13, 2011

The Best Case Against Oil Subsidies

Repealing tax breaks for oil companies is a great idea, but Democrats need to do a better job of explaining why.

It's not enough to argue, as Senator Bob Menendez has, that "we need everyone to do their share to lower the deficit" or that taxpayers shouldn't be subsidizing the oil industry when Americans are paying $4.00 at the pump.

The problem here is that the most generous tax breaks for Big Oil also go to a wide range of other U.S. firms. Surgically nixing just those breaks for the top five oil companies seems unfair and even "discriminatory," as ExxonMobil CEO, Rex Tillerson, told a congressional panel Thursday.

Democrats look like opportunists here -- bashing oil companies to score points with Americans angry at high gas prices. And Thursday's hearing seemed more like a political show trial of Big Oil than any kind of a real conversation about energy or the corporate tax code.

So what should Democrats and progressives be saying about oil subsidies?

For starters, repealing tax breaks for Big Oil -- which cost the U.S. Treasury over $4 billion annually -- should be the launch of a broader campaign against all corporate tax loopholes. There is now wide agreement that these loopholes have gotten out of control. President Obama's fiscal commission urged that all such loopholes be eliminated and that the corporate tax rate also be lowered. That's a good idea and would mirror what tax reformers did in 1986: they closed corporate loopholes, lowered the top rate, and substantially raised the overall amount of tax revenue that the Treasury collected from corporations.

President Obama is gearing up to present his own corporate tax reform plan later this spring and that plan is also expected to close many loopholes. Democrats in Congress should make clear that they are merely getting started early with this important work, and that all of corporate America is in for the same treatment as Big Oil.

Democrats should also find some Republican allies for killing oil subsidies, even if it means giving up a chance to grandstand. Plenty of libertarian conservatives agree that these loopholes are "corporate welfare" and also want to see them closed.

Second, instead of pandering to America's thirst for cheap gas, Democrats should offer a sharper critique of oil companies. Big Oil's sin is not that it is making high profits during hard times, since other companies are as well. Nor is it that they are responsible for high gas prices, which isn't the case.

No, the problem with oil companies is that they want to keep America hooked on their product and routinely use their political muscle to that end. The U.S. need to break its oil addiction has been clear since the OPEC crisis of 1973. Climate change and the rise of China, with its own unquenchable thirst for oil, has added to the urgency of finding alternatives to oil.

Yet oil companies actively perpetuate the lie that America could solve many of its energy problems by more aggressive exploration of oil deposits which lie off our coasts or under federal lands. Rex Tillerson repeated this myth in Congress on Thursday, saying that "Access -- not taxes -- will enable us to meet the goal of increasing affordable energy supplies for Americans."

Yet according to a U.S. government study, even opening up all offshore areas to drilling would only increase domestic oil production by 500,000 barrels a day by 2030. That's a pittance given that the U.S. currently consumes 19 million barrels a day.

In attacking oil subsidies, Democrats need to be clear: These companies aren't going to solve our energy problems, no matter how much they drill or how many tax breaks they get.