- The Internal Revenue Code does not include any tax provisions that benefit only the five large oil companies
- Section 167(h)(5) of the Internal Revenue Code treats the 5 big oil companies less favorably than other taxpayers
- By its nature, the rule of law cannot be selectively applied. If it is to protect any of us, it must protect all of us
To the Editor:
In a recent letter,1 Martin Lobel describes as "intellectually bankrupt" our arguments against S. 940 and S. 2204, two recent bills that would have imposed unfavorable tax rules on five large oil companies that would not have applied to other taxpayers.2 Unfortunately, Lobel mischaracterizes our analysis of why the bills violate the rule of law.
Lobel asks whether the "authors would apply the same rule of law to tax expenditures that benefit only a few powerful entities like 'Big Oil'." Yes, we would certainly condemn provisions singling out a few taxpayers for more favorable treatment than other taxpayers as offensive to the rule of law. At the risk of stating the obvious, however, that hypothetical example has no relevance to the issue at hand. As we documented and as Lobel is undoubtedly aware, the Internal Revenue Code does not include any tax provisions that benefit only the five large oil companies. And it is safe to assume that none will be adopted, given that no senator or representative has introduced or expressed support for any such provisions. What the code does include is section 167(h)(5), which treats the five companies less favorably than other taxpayers. If enacted, S. 940 and S. 2204 would have added several more provisions singling out the five companies for less favorable treatment than other companies.
Lobel asks whether we are "really arguing that once Big Oil or some other powerful interest group gets a tax subsidy, they are entitled to keep it," inexplicably overlooking our emphatic statements that it is perfectly appropriate to remove or limit tax benefits for all affected taxpayers.3 The problem with S. 940 and S. 2204 is not that they would have denied the five companies benefits that they now have; the problem is that they would have targeted the five companies based on their unpopularity and denied them benefits that would have been left in place for other taxpayers.
Lobel also asserts that the tax benefits altered by S. 940 and S. 2204 arose from "politics," not because "they can be justified on economic grounds." As previously stated, we agree that the section 199 deduction, the largest tax benefit altered by the bills, reflects "an economically arbitrary preference for goods over services."4 We noted, however, that the deduction's economic defects do not justify denying it to five unpopular companies while leaving it in place for other businesses, a point to which Lobel offers no response.
A simple analogy may clarify the relevant distinctions. We oppose the enactment of tax expenditures that benefit only Martin Lobel. We do not maintain that Martin Lobel is entitled to keep a tax benefit once he gets it. We recognize that the current form of the mortgage interest deduction arose from politics and cannot be justified on economic grounds. At the same time, we emphatically believe that it would violate the rule of law to deny Martin Lobel the mortgage interest deduction while leaving it in place for other taxpayers. Does Lobel really view that position as intellectually bankrupt?
By its nature, the rule of law cannot be selectively applied. If it is to protect any of us, it must protect all of us, including BP, Exxon Mobil, Shell, Chevron, ConocoPhillips and Martin Lobel.
Kevin A. Hassett
Senior Fellow and Director of
Economic Policy Studies
American Enterprise Institute
Alan D. Viard
American Enterprise Institute
Apr. 23, 2012
1 Martin Lobel, "Lobel Rebuts 'Rule of Law' Defense of Big Oil," Tax Notes, Apr. 16, 2012, p. 369.
2 Kevin A. Hassett and Alan D. Viard, "Big Oil, Targeted Taxes, and the Rule of Law," Tax Notes, Apr. 9, 2012, p. 217.
3 Id. at 222 and 226.
4 Id. at 225.