Ted Cruz and the unbounded generosity of the IRS

Unfortunately it is too easy to write or talk about Donald Trump, love him or hate him. This is one of the chief reasons he’s gotten so much free media coverage. I’ve spilled a fair amount of virtual ink on him already, so it’s time that I write something regarding Ted Cruz.

I had an interesting exchange with someone on Twitter the other day, coat-tailing off of a Sean Hannity tweet.

I think this is something worth talking about in a format that’s not restricted to 140 characters. I do my best to remain “reasonable” and not to let my emotions cloud my judgement in political matters, although that can happen to the best of us. One of the reasons I particularly enjoy listening to Dennis Prager, Ben Shapiro, and Steven Crowder is because they try to give credit and criticism where they’re due, regardless of who they’re talking about.

Likewise, there are some things I don’t like about Ted Cruz, but I think he’s our best choice for president, and I think he’d make a good one. There were things I didn’t like about Rubio, but I would have happily voted for him in a general election or over Trump or Kasich. Trump has a few redeeming qualities and not everything he says is unreasonable (though it’s questionable at this point whether he means anything he says).

If Cruz were proven to be an adulterous dirtbag, or if I were convinced he were, I couldn’t support him. When he strikes me as flip-flopping or hedging on issues I value, that bothers me. Luckily thus far I haven’t spotted too many instances of this.

Onto the topic at hand. Cruz won Iowa despite his call to end ethanol subsidies, and that was a big deal to me. His campaign has continually called for energy independence and a level playing field for all types of energy. Other campaigns and interest groups have attacked him as being pro-oil.

The Gazette article linked above says:

“[…]However, Cruz does support letting oil companies expense intangible drilling costs. This allows oil and gas producers to deduct most of the costs of drilling new wells. Established in 1913, the rule acknowledged the risks of drilling wells that could turn up dry.

Cruz, in a YouTube video in which he’s confronted on the issue at an event, said the practice is “ … analogous to ordinary business expensing that every other industry gets, because that’s essentially capital costs that you’re putting in place.”

But there are differences in opinion whether these breaks qualify as subsidies.

The Committee for a Responsible Federal Budget, a non-profit organization that examines fiscal policy issues, says some argue technology advancements make locating wells cheaper and easier and the deduction is an unneeded subsidy while others say it is an important way to support the energy industry.

A report from the U.S. Department of the Treasury called the practice of expensing intangible drilling costs a subsidy and a “tax preference to the oil and natural gas industry.” According to the Joint Committee on Taxation, a committee within Congress, eliminating this benefit would save U.S. taxpayers about $13.5 billion over 10 year[…]”

Now if you’re looking for ways to “gotcha” Cruz or if you aren’t that familiar with accounting terms and practices, I suppose this line of attack makes sense. But let’s think about this for a moment.

I am not an expert in tax law or the specific business practices of the energy industry, but I do have degrees in Accounting and International Business, so these concepts are not foreign to me. Typically, to my knowledge, most business expenses are tax deductible. This practice makes sense. Here’s a simple example:

Let’s say you sell shirts. In a given year, you make $9,000 in revenue. This is not your taxable income. Let’s say you paid more than you should have for materials and printing, and your marketing didn’t bring in as much as you expected, so your expenses come to $9,000 for the year.

If you’ve broken even and made zero profit, should you still be expected to pay taxes on your revenue? No, normally this is not how income tax works.

So does it make sense that oil companies should be able to count drilling costs among their expenses? It does to Ted Cruz, and I don’t think that’s an unreasonable position to take. It makes sense to me, as well. Again, I’m no expert, but I don’t see how drilling an oil well is any different from any other business expense. Even if this well were considered an asset instead of an expense, assets depreciate or amortize over time (meaning they are written off as expenses, just not all at once).

A report from the Department of the Treasury considers this a tax subsidy. What this says to me is that the IRS thinks a business’ tax liability should actually be its total revenue, not its gross profit. Allowing it to deduct the expenses it incurs is a “subsidy.” How generous of the government to subsidize commerce in this way.

 

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If you still think Ted Cruz is in the tank for oil, you probably aren’t going to be convinced otherwise, but I’d also like to point out that under his tax plan, there wouldn’t be loopholes for businesses to exploit and all this debate would be moot. Getting his plan passed into law is another thing, but at least this is what he supports. Unlike some other candidates who just love ethanol handouts.

ted-cruz

-Bushi

bushi

 

 

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Ted Cruz and the unbounded generosity of the IRS

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