Petroleum and Ethanol Fuels

This correspondence focuses on tax incentives that benefit the petroleum and ethanol industries. Specific petroleum tax incentives range from about $330 million for the expensing of tertiary injectants to about $82 billion for cost depletion deductions. For example, ethanol fuel tax incentives ranged from $198 million for alcohol fuel tax credits to almost $11 billion for the excise tax exemption for alcohol fuels. Some of the tax incentives for the petroleum industry have been in place for many decades, but during the past 25 years, these incentives generally have been scaled back. In the past decade, these incentives have been extended, but the rates of exemption and credit have been somewhat reduced. The estimated revenue losses for these tax incentives should not be added together. GAO concludes that the estimate for each tax incentive is made independently of any other tax incentive, and the effect of making more than one change might be greater than or less than the sum of the changes.

GAO noted that: (1) specific petroleum tax incentives range from about $330 million for the expensing of tertiary injectants to about $82 billion for certain cost depletion deductions; (2) some of the tax incentives for the petroleum industry have been in place for many decades, but over the past 25 years, these incentives have generally been scaled back; (3) ethanol fuel tax incentives ranged from $198 million for alcohol fuel tax credits to almost $11 billion for the excise tax exemption for alcohol fuels; (4) these tax incentives were instituted in 1979-1980; (5) in the past decade, these incentives have been extended, but the rates of exemption and credit have been reduced somewhat; (6) the estimated revenue losses for these tax incentives should not be added together; and (7) the estimate for each tax incentive is made independently of any other tax incentive, and the effect of making more than one change might be greater than or less than the sum of the changes.