#fossil-fuels

I don't know if it is intentional or not, but this appears to be misrepresentation of the situation. The "truck to transport supplies to a well" is not an operating cost. It's a capital expense since it is expense directly going into creating a long-term, income-producing asset (the well). Sticking with his fast-food example, "trucking ingredients from a distributor to the restaurant" to be eaten by patrons in a couple days is most certainly not a long-term, income-producing asset, so it is an operating cost.

Contrasting the expenses included in “intangible drilling costs” with intangible assets shows how intangible is a misnomer in the case of IDCs. An oil producer hiring a truck to transport supplies to a well is clearly not analogous to, say, a company buying up the intellectual property rights to a beloved children’s cartoon character, or the trademark of a fast-food brand. To stick with the fast-food company example, the analogous cost to trucking supplies to an oil well would be trucking ingredients from a distributor to the restaurant—an everyday operating cost of doing business.

Intangible drilling costs are called “intangible” to distinguish them from tangible drilling costs, namely drilling equipment, but it would be more accurate to call IDCs operating drilling costs. Allowing companies to fully expense operating costs is an uncontroversial feature of the tax code across industries, and IDCs are just how operating costs are categorized in the context of oil and gas extraction.

Over the past century, the federal government has pumped more than $470 billion into the oil and gas industry in the form of generous, never-expiring tax breaks. How it all got started:

2013 Despite talk of everything being “on the table,” oil’s tax perks survive the fiscal-cliff negotiations. Congressional Democrats introduce five bills targeting tax giveaways for oil and gas companies. Their death is all but assured, especially in the Republican-controlled House. In April, Obama introduces his 2014 budget, which includes $23 billion for renewable energy and energy efficiency over 10 years and permanent tax cuts for renewable power generation. It also would end “inefficient fossil fuel subsidies.” In contrast, the gop budget proposed by Wisconsin Rep. Paul Ryan targets “federal intervention and corporate-welfare spending” by cutting subsidies for renewables. Tax breaks for oil are left untouched.

The oil depletion allowance in American (US) tax law is a tax break claimable by anyone with an economic interest in a mineral deposit or standing timber. The principle is that the asset is a capital investment that is a wasting asset, and therefore depreciation can reasonably be offset (effectively as a capital loss) against income.

The allowance encouraged people who were taxed at a high marginal rate to invest in, perhaps risky, oil ventures. If the venture failed, then the costs would effectively reduce income, so the effective loss at a 90% marginal rate would only be 10% of the actual investment. Conversely if the venture was successful, an amount up to initial investment (under cost depletion, see below) would be tax free. Under the percentage depletion method the amount could potentially be even greater. The oil depletion allowance has been subject of interest because one method (percentage depletion) of claiming the allowance makes it possible to write off more than the whole capital cost of the asset.

Percentage depletion: With this method, a fixed percentage of the gross income is treated as deductible. The percentage is dependent on the nature of the resource being extracted. It is possible under this scheme for the total deductibles (or indeed the annual deductible) to exceed the original capital investment.

Over the nine decades of its existence since 1916, the oil depletion allowance has benefitted oil companies and the petrochemical industry by more than $470 billion as of 2014, everything else being equal.

Federal tax concessions for oil and gas are the largest of all incentives, amounting to over 70 per- cent of all tax-related allowances for energy. Regulation of prices on oil for stripper wells or new wells, and related incentives, comprises the second largest amount of incentives aimed at a partic- ular energy type. In the R&D category, nuclear energy received about 45 percent of the expenditures since 1950, coal about 23 percent, and renewables about 17 percent of the total. Some additional observations on the data:  Oil and gas received 54 percent ($554 billion) of federal spending to support energy since 1950. Oil alone received three-fourths ($414 billion) of this amount.