Many people are trying to figure out what is the government’s “fair share” of income from the nation’s wealthiest people and corporations. In a move that is sure to upset anti-tax advocates, the Obama administration wants to raise the royalties that land-based oil drilling operations pay by 50% It would be the first such oil royalties hike since the 1920’s, and it is naturally meeting with resistance from the fossil fuels lobby.
Right now, on-shore drilling operations pay a 12.5% royalty rate, while off-shore operations pay 18.75%. According to Secretary of Energy Salazar, the Obama administration wants to raise the on-shore rate to the off-shore rate, meaning that all oil operations would pay an 18.75% royalty rate.
Sounds pretty stiff, but consider this; the government has been offering many oil companies royalty-free leases on-shore and off for much of the past century. And in countries like Iraq (90%) and Saudi Arabia (85%), the royalty rates are much, much higher. Obviously oil companies want the lowest rates possible, but they’ll not find them in the first world.
Even Canada charges a royalty rate of 25% for oil and tar sands alike. That is half of America’s current on-shore royalty rate, and the oil and gas industry is absolutely booming for our Northern neighbor. At a time when oil companies are generating record profits, I think it is only fair that they should have to pay extra money on land that belongs to the people of the United States. And keep in mind the billions in tax subsidies the oil industry receives, on top of free leases in special areas that have cost the U.S. billions in lost income.
Such an increase would also probably bring energy prices more in line with where they should be. Gasoline has been undervalued and over subsidized for too long, unfairly dominating the marketplace. Once people get used to the true cost of oil, alternatives will appear much more attractive. I think the administration should follow through on this royalty increase, which would be the first of its kind since the 1920’s. Big Oil has been too comfortable for too long; let’s shake things up.