The rhetoric against oil companies is getting louder and louder as prices for oil and gas increase. Personally I have started to look into the oil industry a bit deeper. I am discovering that some of the rhetoric used by Presidential candidates and many members of Congress is misleading. I want to address some of these issues and separate the facts from the myths.
The first one - the government subsidizes oil companies through tax credits while the oil companies make record profits.
The tax code is complicated and I don't question the fact that the government provides some tax credits to oil companies for some activities. I do question if these tax credits mean the government subsidizes oil companies.
This chart shows oil company profits and oil company taxes paid over time up to 2004.
Quote:
Figure 1 illustrates the magnitude of government tax collections versus industry profits between 1977 and 2004. During this period, the 29 largest domestic energy firms earned a collective $630 billion after adjusting for inflation. These profits varied dramatically—from a low of $7.9 billion in 1995 to a high of $42.6 billion in 2004—based upon world market demand, supply, and international events.
In contrast, the taxes paid or remitted by domestic oil companies have been consistently far greater than their profits and now total more than $2.2 trillion (adjusted for inflation) over the past quarter century. The largest share of those taxes is federal and state gasoline excise taxes. In 2004, governments collected $58 billion in gasoline excise taxes. Overall, governments have collected $1.34 trillion in gasoline excise taxes since 1977.
Today, U.S. consumers pay an average of 45.9 cents per gallon in gasoline taxes. The federal gasoline excise tax is 18.4 cents per gallon while the average state and local tax is 27.5 cents. The vast majority of these taxes are levied at a flat rate per gallon—regardless of whether a gallon of gas costs $1.49, $2.49, or $3.49. Thus, the effective rate of these taxes can vary wildly, from roughly 31 percent in the former case to 13 percent in the later.
Federal and state governments also collect a substantial amount of excise tax from the sale of diesel fuel. In today’s dollars, governments have collected $160 billion in diesel fuel excise taxes since 1977.
Oil companies also pay taxes to governments for the right to extract oil from public lands and waters. For example, the federal government has collected a total of $48.8 billion in royalty payments from oil companies in exchange for their ability to explore and drill in the U.S. outer continental shelf. Oil companies also pay severance taxes to state governments for the right to drill on state lands. Unfortunately, complete data on state severance tax collections for the period is not available at this time.
In contrast to excise taxes, corporate income tax payments vary as widely as industry profits. As mentioned above, domestic energy companies earned a total of $630 billion in post-tax profits between 1977 and 2004. Tax Foundation economists estimate that companies paid $518 billion in corporate income taxes to federal and state governments during the same period. These payments varied from a low of $5.1 billion in 1995 to a high of $40.4 billion in 1981.
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http://www.taxfoundation.org/news/show/1168.html
It seems to me that government takes a larger portion of oil company revenues than the oil companies make in profits. The oil companies also use a portion of their profits to reinvest in future growth.
Using Exxon Mobil's income statement it shows that in 2003 they paid the following in taxes:
Sales Based taxes: $23.855 billion
Other Taxes/Duties: $37.645 billion
Income Taxes: $11.006 billion
Total: $72.500 billion.
They made $21.5 billion in profits.
In 2007:
Sales Based taxes: $31.728 billion
Other Taxes/Duties: $40.953 billion
Income Taxes: $29.864 billion
Total: $102.545 billion.
They made $40.61 billion in profits.
Taxes went up by $30.045 billion while profits went up $19.11 billion.
It seem on a dollar rather than percentage basis, the government is getting a bigger "windfall" profit than Exxon Mobil.
Also, keep in mind dividends, which are taxed at the individual level. In 2003 they paid $6.5 billion in dividends and in 2007 they paid $7.621 billion in dividends. If we use a 25% tax rate on the 2007 dividends the government collected another $1.905 billion in taxes from top line revenues.
Oil companies are making record profits, but they are paying record expenses and record taxes. Perhaps the above is not a myth, but those who use that kind of rhetoric are misleading people in my opinion.
I am open to hearing opposing views on this and perhaps we can discuss othe oil company myths using factual data.