Here at R Street, we are against energy subsidies. We don’t like subsidies for renewable energy, for fossil fuel power or nuclear power. And if someone proposed a subsidy for hamster-generated electricity, we’d be against that too.

That’s the easy part. But given the tangled mess that is our current tax code, figuring out how to apply that principle in practice can be tricky. To begin with, a tax provision is not a subsidy just because it treats some industries differently than others. Consider alcohol taxes, which apply to one type of beverage (Bud Light), but not another (Coke). The increase in relative prices due to the tax probably even leads some people to order a Coke instead of a beer. So does this mean that alcohol taxes are a subsidy to Coca-Cola? Most people would say no, because the tax is meant to address an issue—the social costs of drunkenness—that applies to alcoholic, but not to non-alcoholic, beverages.

In addition, even where differential tax treatment is unjustified, the problem might be not that certain groups aren’t paying enough—which is what the word “subsidy” suggests—but rather that others are paying too much. If someone opposed alcohol taxes altogether (say, because of a principled objection to using the tax code to influence people’s consumption choices), then the resolution would involve the elimination of the special tax on beer, not a broader application thereof.

A related issue can arise when it comes to the tax code’s treatment of energy industry long term capital investments. As a general rule, businesses are allowed to deduct ordinary business expenses from their taxes: when a business spends money now on an asset that is expected to pay out over the course of multiple years, they can deduct the expense of that investment. The only question is when the deduction can take place. One option would be for the business to deduct the full amount of the expense when it occurs, and then pay taxes on the revenue it generates in future years when that occurs. This method is known as full expensing, and it is a straightforward, logical and economically efficient way of achieving the general purpose of corporate income taxes. It’s also not the way the U.S. tax system ordinarily operates.

Instead, in most cases a business may only deduct a part of the expense each year for multiple years according to schedules set out in the Modified Accelerated Cost Recovery System (MACRS). Because dollars today are worth more than dollars tomorrow, this system discourages business investment and makes the overall tax code less efficient.

There are, however, some areas where a business can use the full expensing method, or at least something much closer to it than under MACRS. Among these is the deduction for “intangible drilling costs” (IDC) for oil and gas wells.

The IDC does give oil and gas companies more favorable tax treatment than is available to many other industries. For this reason, it has often been called a subsidy and targeted for elimination. The Clean Energy for America Act, which was recently passed out of the Senate’s Finance Committee, would eliminate the IDC, as would President Joe Biden’s proposed budget. If eliminated, oil and gas companies would presumably have to use MACRS for their expensing.

The problem is that MACRS itself is bad. Instead of allowing deductions to occur for expenses as they actually happen, and taxing the actual profits if and when they actually occur, the MACRS abstracts things as if they happened when they didn’t. The tax code should have less MACRS in it, not more.

Eliminating the IDC deduction would therefore be a step in the wrong direction. To the extent there is disparate treatment in the current system, it ought to be rectified by making other businesses eligible for the same sorts of immediate expensing that well drilling currently has, rather than by attempting to make oil and gas companies share in the “MACRS misery” of other sorts of businesses.