If you run a business, like a restaurant or grocery store, you know the importance of writing off your expenses every year. Every steak you buy, for instance, can be written off. But if you tried writing off those steaks at prices 20% higher than what you paid for them, you may be guilty of tax fraud.
Yet that is exactly what the oil companies are getting away with thanks to a tax loophole called "LIFO" accounting. They buy as much oil as they can early in the year, betting that prices will go up over time, and then they sell it when prices get higher. That's a fair way to make money, but the problem comes at tax time. Rather than writing off the expense at its cost, they write it off as if they paid the higher prices for it in the first place. By claiming an expense that is much higher than what they paid, they make even more money on it, by paying less in taxes. And because of a long-standing loophole, it's not even tax fraud.
This trick is especially useful for the oil industry. Crude prices have gone up more than 20% on average from January to December each year over the past 12 years. That's ten times more than inflation, which averaged about 2% annually. So they can overstate their costs by 10 times the inflation rate. Few other commodities can win as much money on this game of LIFO as Big Oil can. With billions of barrels of oil being bought and sold, this adds up to billions of dollars every year -- dollars that go into the oil industry's record profits, rather than into our Treasury.
Whether you are a fan of paying down the debt, providing a strong national defense, or protecting social security, if that money is sitting in the oil industry's pockets rather than in our national bank account, we are all out of luck. Yet this game has been going on for decades and it has cost our country billions of dollars, maybe even hundreds of billions, and counting. In the next ten years alone, this will add up to over 50 billion dollars. Those funds would go a long way toward paying off our debts, educating kids or making sure our soldiers are adequately outfitted, just to name a few options.
President Obama has proposed fixing this injustice but, not surprisingly, the oil industry and its Congressional caucus is crying "foul." They claim removing this gaping loophole is unfair and that it singles their industry out. But it's really the oil industry that has singled itself out by gaming this tax loophole to maximize its profits and minimize what it gives back to society to an atrocious extent.
As long as you and I have to pay our taxes fairly, the oil industry should too. It's time we close this gaping loophole along with the many others the industry enjoys, and stop letting big oil run roughshod over our country's finances.