The People of America's Oil and Natural Gas Indusry

Taxes and Business, There We Go Again

Mark Green

Mark Green
Posted August 17, 2011

"...the federal government has cynically told us that high taxes on business will in some way 'solve' the problem and allow the average taxpayer to pay less. Well, business is not a taxpayer, it is a tax collector. Business has to pass its tax burden on to the customer as part of the cost of doing business. You and I pay the taxes imposed on business every time we go to the store. Only people pay taxes and it is political demagoguery or economic illiteracy to try and tell us otherwise."

An important point from a campaign speech. No, not Mitt Romney from last week, Ronald Reagan from 1979 (h/t @Jim Pethokoukis). Sadly, 30+ years later we are seeing this same confusion over taxing businesses. In the interest of economic literacy, let's see what the Tax Policy Center says about who bears the burden of tax increases on business:

"There are four main possibilities: the owners of the corporation, owners of capital in general, workers, and consumers. A) The corporation's owners could get a smaller return on their investment if the tax reduces profits. B) All owners of capital could suffer if the tax induces a reallocation of investment toward less profitable but untaxed endeavors, thus reducing the after-tax return to all affected capital. C) Workers could receive less pay if the tax causes investment to move away from the firms that employ them, leaving them less productive than they would otherwise be. D) Consumers could pay more for the firm's products if reduced output pushes prices up. Most likely the answer is E) All of the above.

...Corporations may write the check, but it's people who ultimately pay corporate taxes."

This subject came up yesterday in a Wolf Blitzer interview with someone else running for president in 2012, President Barack Obama:

BLITZER: Mitt Romney says corporations are people. Does he have a point?

OBAMA: Well, if you tell me that corporations are vital to American life, that the free-enterprise system has been the greatest wealth creator that we've ever seen, that their corporate CEOs and folks who are working in our large companies that are creating incredible products and services and that is all to the benefit of the United States of America, that I absolutely agree with.

OK, this is a political answer, not an economic literacy one, so you know what's coming next - the demagoguery:

OBAMA: If, on the other hand, you tell me that every corporate tax break that's out there is somehow good for ordinary Americans,

Pause. OK, back to economic literacy. Regarding good for "ordinary Americans," see the Tax Policy Center's possibilities on who pays above. Back to the president:

... that we have a tax code that's fair,

Pause. This is a valid point. In the twisted, byzantine world of the U.S. tax code, fairness is often the first casualty. Let's have a look at the effective tax rates for 12 U.S. companies that all made more than a billion dollars in the second quarter:

incometax%.jpg

With tax rates that range from 44.91 percent all the way down to -2.05 percent, one could clearly make an argument that some fairness is in order. Back to the president:

... that asking oil and gas companies, for example, not to get special exemptions that other folks don't get, and that if we're closing those tax loopholes somehow that that is going to hurt America, then that I disagree with.

Really? Oil and natural gas companies are the "for example"? First off, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Second, well, let's go back to a slightly different look at that chart:

incometax%red.jpg

The diamonds in red are the effective tax rates for the five largest U.S. oil and natural gas companies. If the president wants to call for overhauling the tax code, great! We're with him. But singling out one industry, one that already pays higher taxes than most, could reduce our energy security and threaten job creation. Furthermore, in the long run, the negative economic consequences of higher taxes on energy companies in terms of jobs, energy produced and tax revenues to government more than offset any short-term tax revenue gains. That is how political tax hikes "somehow" hurt America and why we need tax policies based on economic literacy.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.