Let me state up front that I am a fan of Jon Stewart. I watched The Daily Show for years. He calls attention to many important issues, and he is a formidable debater.
But Stewart recently made a claim on his show that promotes a common misconception: “How about we just take $3 billion in subsidies we give to oil and gas companies that turn billions in profits?”
It’s a statement that sounds damning—but is it accurate? While this claim resonates with many, it misrepresents how the oil and gas industry operates in relation to government support. The notion that oil companies receive massive handouts distorts public perception and fuels unnecessary animosity toward the sector. In reality, there is a massive flow of money from these oil companies to federal, state, and local governments—not the other way around.
Understanding “Subsidies” in Context
When most people hear the word subsidy, they imagine the government handing over large sums of money to corporations. However, what oil companies receive are tax breaks—similar to those granted to many other industries. These tax deductions allow businesses to recover costs related to production, infrastructure, and operational expenses.
A true subsidy is when the government directly hands money to a company. A tax deduction, on the other hand, simply reduces what a company owes—just like how individuals deduct mortgage interest or student loan payments from their taxes.
In return, oil and gas companies contribute billions of dollars in taxes annually. For example, ExxonMobil alone paid $13.8 billion in income taxes in 2024. Additionally, these companies pay severance taxes, royalties, property taxes, and more, all of which generate significant revenue for governments. Further, the oil industry employs millions, who in turn pay income and property taxes. Dismissing these contributions while solely focusing on tax breaks creates a misleading narrative.
Imagine that you, as a taxpayer, are allowed to deduct certain items from your taxes. Would you agree that the government is giving you subsidies? Probably not. You probably feel that your taxes are subsidizing the government and allowing you deductions to lower your tax bill isn’t exactly what most consider to be a subsidy.
Is Military Protection a Subsidy?
Another argument raised with me in a recent Facebook discussion was that oil companies benefit from the U.S. military securing global supply lines. While it’s true that military presence in oil-rich regions has historically helped maintain market stability, this “subsidy” benefits consumers far more than oil companies.
For decades, U.S. policymakers have prioritized low gasoline prices as a means of economic stability. Military actions aimed at securing oil trade routes help ensure price stability, which ultimately helps American consumers avoid economic shocks from supply disruptions. If oil companies controlled pricing, they would simply charge whatever the market could bear.
To illustrate, consider what happened when Russia invaded Ukraine. President Biden ordered the largest release in history from the Strategic Petroleum Reserve. Was this an effort to help Big Oil? Of course not. It was meant to control rising gasoline prices because politicians who preside over rising fuel prices risk losing elections.
The Externalities Debate
Another common argument is that oil companies benefit from not paying for the full environmental costs of carbon emissions and pollution. There’s no denying that fossil fuel use results in external costs, from rising carbon emissions to health impacts. However, framing this solely as a subsidy to oil companies ignores the reality that consumers also benefit from artificially low energy prices.
If these externalities were fully priced into the cost of gasoline, there would likely be widespread political upheaval. Governments would face intense backlash, as we’ve seen historically whenever fuel taxes increase. Politicians are acutely aware that rising gas prices lead to public dissatisfaction and electoral consequences. As a result, while it’s true that oil companies profit from the current structure, it’s equally true that consumers are the primary beneficiaries of the status quo.
The Political Reality of Energy Policy
Calls to eliminate “subsidies” for oil companies often fail to acknowledge the broader economic implications. If these tax breaks were removed, companies wouldn’t simply absorb the cost—they would pass it along to consumers. Gasoline prices would rise, and the public would demand government intervention, likely leading to new policies that offset these costs in other ways.
Moreover, oil companies are not unique in receiving tax incentives. Renewable energy companies also receive substantial government support, including direct subsidies, tax credits, and grants. If the goal is to create a fair and competitive energy market, discussions around subsidies should include all industries—not just oil and gas.
Final Thoughts
The notion that oil companies are being handed billions of dollars in government subsidies is misleading. They, like other industries, benefit from tax structures designed to encourage investment and job creation. They also pay substantial taxes and provide millions of jobs that contribute to the economy.
If we are serious about addressing rising carbon emissions and transitioning to cleaner energy sources, the focus should be on pricing externalities appropriately and ensuring a balanced approach to energy policy. However, reducing the discussion to simplistic claims about “subsidies” does little to advance meaningful debate.
If the goal is a fair, competitive energy market, then all industries—including renewables—should be scrutinized for the incentives they receive and the benefits they provide. Oversimplifying the debate won’t lead to smarter policy—just more misinformation.
By Robert Rapier
