The People of America's Oil and Natural Gas Indusry

Oil, Natural Gas, and Taxes

Kyle Isakower

Kyle Isakower
Posted August 3, 2011

Today I had the below letter responding to this article in the The Santa Fe New Mexican:

Readers should know to be leery of any group that uses "For Common Sense" as part of its name, and they should understand that more often than not it possesses very little of it.

A case in point is the group Taxpayers for Common Sense and its absurd assertion that governments subsidize the oil and natural-gas industry. The truth is that this industry contributes some $86 million a day to the federal government in royalty payments, rents and bonuses. Tax provisions available to this industry are legitimate deductions for business costs, to which other businesses are entitled. And oil and natural-gas companies pay effective income tax rates that are, on average, considerably higher (41 percent) than those paid by other Standard & Poor-rated companies (27 percent).

The oil and gas industry's contributions encompass more than taxes, royalties and fees. This is an industry, after all, that supports 9.2 million American jobs, including some 79,000 in New Mexico.

Because the most well-known oil and natural gas companies are large, their earnings often are reported prominently -- even breathlessly. What is not reported is that, compared to the earnings of companies in other industries, there is nothing out of the ordinary about them. For instance, for the second quarter of this year, oil and natural-gas company earnings averaged 5.9 cents of net income for every dollar of revenue, compared to 14.9 cents on the dollar for the top Dow Jones Industrial companies.

Who benefits from these earnings? The overwhelming majority of oil and natural-gas company shares are owned by individual investors, mutual funds, IRAs and pension funds. Significantly, the oil and natural-gas industry is the best source of investment revenue for public-employee pension plans. In New Mexico, for instance, between 2005 and 2009, oil and natural-gas assets represented just 4.7 percent of the top two pension plans' total assets, yet they accounted for 19 percent of the returns. These returns averaged 41 cents for each dollar invested, compared to just 2 cents for other assets in these funds.

ABOUT THE AUTHOR

Kyle Isakower is vice president of regulatory and economic policy at the American Petroleum Institute. With 26 years experience, he is the go-to guy for issues regarding energy and environmental policy and oversees the development of API standards and economic analyses. In his past lives, Kyle has worked on issues related to waste management and remediation, NAAQS and air toxics—and led efforts promote the industry's energy efficiency efforts. Transplanted to Washington from north Jersey over 20 years ago, he remains faithful to the New York Giants, and works diligently to ensure his wife and two children do so as well.