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Friday, 02 September 2016 06:23

Oil Pipeline Companies Receive Billions of Dollars in Tax Breaks

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15057321270 5a0f1047ed zOil pipelines not only pose an ongoing peril, the companies benefit from not paying taxes and being allowed to charge excessive rates. (Photo: Luke Jones)

Oil pipeline companies represent the predatory flow of capitalism unrestrained by responsibility for environmental destruction, contribution to global warming, scarring the natural landscape, and violating the rights of Indigenous people and others through the use of eminent domain to construct the pipelines. That list of foul deeds is just for starters.

That's why a September 1 article in The Daily Beast by Pulitzer Prize-winning journalist and friend of BuzzFlash David Cay Johnston is particularly alarming. Johnston details how many large oil pipeline companies are essentially exempt from corporate income tax. Not that anyone should be surprised that a destructive industry should be rewarded with special tax breaks. In fact, just yesterday we highlighted a report on how big banks receive tax breaks for enormous "performance-pay" bonuses given to CEOs. 

What's more, Johnston points out that due to a recent arcane ruling by the DC Circuit Court of Appeals, many oil pipeline companies are allowed to include a tax that they don't pay in adjusting their pricing. That's correct: the oil pipeline companies that don't pay a corporate income tax can include the tax that is not levied on them as a "reasonable cost" in pumping up their invoice pricing.

Johnston assesses the legalized corruption:

The new court ruling shows that the pipelines are ripping people off for not just 54 percent more than their profits, as I have reported, but for double that....

Previously I calculated from disclosure reports that the pipeline industry tax rip-off totals about $3.4 billion annually. A Congressional study prompted by my reporting estimated the cost at $1.9 billion. Judge Sentence’s decision [in the DC Circuit Court of Appeals suggests the rip-off costs Americans somewhere between $3.8 billion to $6.8 billion annually.

Furthermore, this is not just something that impacts what the oil-processing industry pays to oil pipeline companies. This also impacts, for example, how much an airline pays for fuel -- and how much a driver pays to fill up the car with a tank of gas. In short, these inflated oil pipeline transport prices end up frequently coming out of the pockets of consumers. In addition, there are the taxes that we pay, given the huge tax break afforded to qualifying oil pipeline companies.

The analysis by Johnston of the major oil pipeline companies provides another example of how big corporations with lots of DC lobbyists can have such tremendous influence on both Congress and regulatory agencies -- in this case, on the Federal Energy Regulatory Commission (FERC).

This morning, I briefly interviewed David Cay Johnston about master limited partnerships and the legally sanctioned profiteering of the large pipeline companies:

BuzzFlash: What are master limited partnerships (MLP) and why Congress would have exempted them from corporate income tax in 1986?

Johnston: The 1986 Tax Reform At expanded the list of flow through MLPs to include energy. Overall energy MLPs are growing like kudzu now.

Before the change, if you had an MLP that traded like a stock it was taxed like a C Corporation, which is what all the big publicly traded firms are — GE, GM, etc. 

That means the corporate income tax was paid and then you paid taxes on your dividends or, if you sold your partnership units at a profit, the profits were taxed

BuzzFlash: In essence the MLP pipelines are allowed excess profits because of the exemption from corporate tax and their pricing which includes the tax that they don't pay. Is that correct.

Johnston: Exactly. And, by the way, the same DC Circuit (which hears all appeals from administrative agency rulings) has held that one dollar of excess profit  is illegal. Now in reality we would never know about a dollar, but the legal principle is that you cannot earn more profit than authorized.

All utility regulation is based on the idea that since no market exists to set prices, the regulators act as a proxy for the market. History shows that they are generous.

To those who despair that Washington, DC is intransigently corrupt, Johnston points to Gordon Gooch, former general counsel for FERC, who now regularly challenges his former agency to rescind the oil pipeline giveaways and correct other injustices. Johnston, in his Daily Beast article, credits Gooch with tipping him off to the DC-sanctioned profiteering:

Gooch first alerted me to this rip-off and his petitions to FERC to stop it years ago.

FERC dismisses his petitions, saying that, as a mere consumer, he has no standing to challenge its decisions. Gooch’s latest petition is labeled “prohibited” by FERC, yet it listens closely to everything the industry it regulates wants. It even holds “off the record” “technical conferences” with the industry’s lawyers and lobbyists.

Gooch knows it's not a fair fight: The oil pipelines are bursting with money and K Street lobbyists. But to give up is to give in. That is not an acceptable alternative to Gooch -- or to any of us who believe that corporations should not be determining our national future.

Not to be reposted without the permission of Truthout.