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"The political power of the oil industry, not national security, is the reason for the present subsidies to the industry. International disturbances simply offer a convenient excuse.(57) Indeed, the American oil industry enjoys extraordinary political power. When Kennedy entered the White House, the American fiscal system, and in particular the system of the depletion allowance, had enabled a few operators in the oil industry like H. L. Hunt to amass in only a few years the kind of fortune it had taken Rockefeller a half-century and a great deal of patience to accumulate.

If a person had enough capital, speculation in oil operations carried virtually no risk. He could take capital which normally would have been taxed at the rate of 90% and invest it in new oil wells. A speculator with $900,000 in this tax bracket could drill nine wells (at an average cost of $10,000). The odds were that one well out of nine would be productive. The eight dry wells would have cost him $10,000 each, all tax-free, and the ninth would earn him a fortune. With a little perseverance, any speculator could make a million.

Pools or joint ventures enabled citizens with more modest revenues, but whose income was still partly taxed in the 90% bracket, to do the same thing. These persons would purchase fractional interests in an oil well. Some of them never even got to see "their" well, but every tax dollar they invested represented a gain of approximately 25% on their capital. In the war and immediate post-war period, investment in the petroleum industry was one of the most obvious and attractive ways of reducing personal income tax liability. For the non-professionals this system was still, to a certain extent, a speculation, but the same was not true of the big companies, which employed experienced geologists and commanded unlimited capital.(58)

These special privileges constituted an international anomaly, and they cost the nation several billion dollars every year.(59) It has been estimated that the abolition of these favors would have enabled the government to avoid the 1951 tax increase that applied to taxpayers earning as little as $4,000 a year. The oilmen, conscious of the importance of these privileges, have always claimed that their abolition would hinder new explorations. But the fantastic number of wells drilled in the United States represents a waste of natural resources. ...

A half-century ago, the oilmen lacked the influence in the White House that they had over Congress. They regarded the President with suspicion. For them, the country had been going to the dogs since McKinley. The power of the oil lobby was a concern to every President who entered the White House after the accession to power of Jersey Standard and its little brothers and sisters. In 1920 President Harding was elected with the massive backing of the oil industry. Two members of his Cabinet were oilmen (Hughes of Standard and Fall, an associate of Sinclair). Coolidge, and after him Hoover, did nothing to displease the oil magnates. On the day of Franklin D. Roosevelt's death, a San Antonio oilman threw a huge party to celebrate. Roosevelt, nevertheless, had not been particularly aggressive towards the oil industry. The pre-war climate was hardly favorable, and the war, which was still going on at the time of his death, had brought a boom in the oil business.

In 1950 President Truman examined the depletion allowance system, and the oilmen learned that the President felt that an exoneration that withheld such amounts from the Treasury was not equitable. That same year Hubert H. Humphrey, then a political neophyte and regarded as a liberal, introduced an amendment to the tax bill that would reduce the depletion allowance. The amendment was rejected. It was re-introduced in 1951 but rejected again by a margin of 71 to 9. In 1952 President Truman turned again to the problem, but any decision he might make was at the mercy of Congress, and Harry Truman liked the quiet life. Nevertheless, during his last days in office he adopted one of Roosevelt's ideas and declared that the continental shelf (an extension of the American coastline) was part of the national reserves and should be placed under the control of the Department of Defense. The value of the oil beneath the sea had been estimated at $250 billion, and Truman felt it would be madness to let this oil, which was vital for national defense, fall into private hands, obliging the government to buy it back at high prices.

In 1952 Eisenhower received heavy financial backing from the oil industry in his campaign against Adlai Stevenson. Ike knew how say thanks. When Truman's bill came up before Congress, the House rejected it in favor of a measure recognizing the property rights of the states over any oil discovered within ten and a half miles (twelve for Texas and Florida) of their coastline. The federal government was left with only a right of preemption over the resources of its former territory .The bill was later voted into law by the Senate.(63) ...

At the 1960 Democratic Convention, the representatives of the oil states, headed by Sam Rayburn, supported the candidacy of Lyndon Johnson, but Kennedy won the nomination. In the spring of 1961, Mr. Morgan Davis(70) remarked during a private luncheon, "It's impossible to get along with that man."

As a Senator, John Kennedy had not been popular with the oilmen, but they weren't afraid of him. They knew that his father Joseph had invested a large part of his fortune in the oil business, and they couldn't conceive that his son, even if he were to become President, would dare take a position that would go against his own and his family's financial interests.(71) H. L. Hunt expressed the same opinion when he confided to Playboy in 1966, "Catholics are known for being anti-Communist, and I had never seen any evidence of fiscal irresponsibility in the Kennedy family."

The oilmen were wrong. The new President decided to broach the issue. Although he didn't go as far as John Ise,(72) he felt, like Roosevelt, that the control of the national economy should not be allowed to continue in the hands of the few, but should be enlarged to include millions of citizens or be taken over by the government, which in a democracy is responsible to the people. But he knew also that any re-examination of the principles of profit-making and free enterprise from the moral, social or even national point of view would be rejected not only by the oilmen, but also by a good many other citizens as an attack on the American way of life. In the past, such attacks by the administration and the Justice Department had been defeated.(73)

The only chance for a modification of the structures of the Oil Empire lay in a major crisis, internal or external -- an economic crisis or a war. But President Kennedy was working for peace and economic expansion, and he knew that his objectives could not be attained unless the principles of the American autarchy were re-examined and their destructive action brought progressively to a halt.

A year after he entered the White House, in 1962, the new President studied the reports of his advisers and decided to act. He had reacted with violence to the dictates of the steel industry; in the case of oil, he laid his plans more cautiously. On October 16, 1962, a law known as the Kennedy Act removed the distinction between repatriated profits and profits re-invested abroad in the case of American companies with overseas operations. Both were henceforth subject to American taxation. The law also sought to distinguish between "good" earnings resulting from normal commercial operations, and "suspicious" revenues siphoned off at some point in the commercial circuit by subsidiary companies located in tax havens abroad.

This measure was aimed at American industry as a whole, but it particularly affected the oil companies, which had the largest and most diversified overseas activities.(74) At the end of 1962, the oilmen were estimating that their earnings on foreign invested capital, which in 1955 had equaled 30%, would fall to 15% as result of these measures.

But Kennedy's second measure was far more important and infinitely more dangerous. It affected not only the companies with overseas investments, but all companies which, in one way or another, benefited from the privileged status of the oil industry. It called into question both the principle and the rates of the fiscal privileges, the improper use of tax dollars, and the depletion allowance. If adopted, it would undermine the entire system upon which the Oil Empire was based.

On January 24, 1963, in presenting his bill to Congress, President Kennedy declared, "Now is the time to act. We cannot afford to be timid or slow." For him, the fact that it was going to be difficult made it all the more necessary to act. But the Oil Empire wasn't the steel industry. Its leaders were of a different mettle. Ludwell Denny had said, "We fight for oil." By tangling with the oilmen, Kennedy was commencing the last year of his life. He considered his fiscal measures as the first step in a vast national reform.

As George Washington said to Henry Lee on October 31, 1786, "Precedents are dangerous things." The oilmen thought so too. "Think" is the motto of the businessman. Once they had determined what had to be done, they set about choosing their battleground and meticulously laying their plans."