Cutting “oil subsidies” is an interesting subject. Most of the time when you ask for details on how the proponents plan to cut oil subsidies they are talking about altering depreciation schedules. The reason the depreciation schedules were altered in the first place was to encourage companies to increase their capital investments. This altered depreciation schedule is available to all companies not just oil companies. Increased capital investments are good for the economy and what is good for the economy is typically good for incumbent politicians. That is why the changed the depreciation schedules. This time we are seeing a different tax slant. Here is a quote from Representative Ellison in the Huffington Post.

Last week, I said that if Congress has to make cuts, we should embrace the idea of ridding ourselves of wasteful giveaways to the fossil fuel industry. Here’s an idea. Let’s cut the Master Limited Partnership loophole and fossil fuel subsidies.

Some years ago I invested in a Master Limited Partnership based on the recommendation of my broker. It was involved with “mezzanine financing” for small companies and it was a much more profitable venture for my broker than it was for me. In hindsight it was another way for brokers to sell me stuff I would not normally buy. Since I am older and wiser now, I avoid Master Limited Partnerships. Recently my mother-in-law invested in a Master Limited Partnership on advice of her broker. When I looked at its return on investment it was a lousy investment, too. Her broker does not like me anymore. There are more reasons to dislike Master Limited Partnerships. If you fill out your own tax returns, tax accounting for Master Limited Partnerships is a pain in the butt. As a person who lived in the oil patch for 18 years, Master Limited Partnerships are just another way to separate doctors, dentists, and lawyers from their money.

Although I would celebrate the demise of Master Limited Partnerships, Representative Keith Ellison’s argument that Master Limited Partnerships should be closed because they use a tax loophole is silly. This is the same loophole used by any partnership or sole proprietorship in which the income gets transferred directly to the partner or owner’s tax return. I doubt he is planning to change these areas, too. The biggest problem for Representative Ellison is that it is hard to get a bigger slice of the tax revenue pie when you are dealing with investments that do not generate much revenue. Oil companies are not offering their prime properties in this market. The properties in Master Limited Partnerships are tough investments to sell to the public. I suspect most companies will opt out of trying to make a market for these lower quality properties. If Representative Ellison was arguing that Master Limited Partnerships are lousy investments and should be avoided for the reasons I mentioned above, I would fully agree with him. In this case he is just making a purely political statement and the chances our country would get additional tax revenue by eliminating Master Limited Partnerships is between slim to none.