The People of America's Oil and Natural Gas Indusry

Pounding the Facts on Energy and Taxes

Mark Green

Mark Green
Posted April 12, 2013

There is an old legal saying: “If you have the law, hammer the law. If you have the facts, hammer the facts. If you have neither the law nor the facts, hammer the table.” This came to mind the other day while reading the Center for American Progress’ (CAP) response to the latest White House proposal to raise taxes on oil and natural gas companies.

**Spoiler Alert **

They like the idea – but CAP's post is a lot of table hammering, and the table is the oil and natural gas industry.  Let’s de- demagogue this with a look at the facts.

CAP says:

President Barack Obama’s budget proposal for fiscal year 2014 would eliminate $39 billion of special tax breaks for Big Oil companies…

Far from being “special tax breaks,” the industry is allowed deductions to recover costs just like every other industry, a fact even Congressional Democrats concede.   The president’s proposal would create tax increases specifically targeting oil companies.

Back to the table:

These companies earned billions of dollars in recent years due to high oil and gasoline prices and do not need additional support from taxpayers.

Oil and natural gas companies do not receive “support from taxpayers.”  They contribute, on average, $85 million a day to the federal government.  But the real hammer-the–table moment in this sentence is the phrase, “in recent years due to high oil and gasoline prices.”  Because gas prices first climbed in 2008 due to increased worldwide demand, “Big Oil” companies averaged a return of 6.2 percent. In the five years prior to that their return averaged 8.2 percent.

Back to the table:

The five largest oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell—earned a combined total of $255 billion in 2011 and 2012, largely a result of higher oil prices.

See above. The profit was not largely a result of higher oil prices, but rather because oil and natural gas provide more than 60 percent of the energy the American people and the American economy need.

Back to the table:

Meanwhile, these companies…have $72 billion in cash reserves, and are using one-quarter of their profits to buy back their own stock to enrich their largest shareholders.

Yes indeed, the five largest oil companies have $72 billion dollars in cash reserves. That’s $65 billion less than Apple’s $137 billion.  As for  enriching their largest shareholders, that would be growing pension funds – many of them benefiting retired public school teachers, police officers and others.

And lastly:

API equates eliminating special tax breaks with tax increases, when in actuality such legislation would simply make Big Oil pay its fair share of taxes.

Fair share – that certainly sounds like a good and welcome thing.  How about $188 billion in income taxes paid by these five companies in 2011 and 2012? Given their “combined total of $255 billion,” that puts their effective tax rate at 42.6 percent (chart below for 2012).  That’s just income taxes and doesn’t include the myriad of other taxes that companies pay and that consumers pay on the products the companies produce.

CAP can hammer oil and natural gas companies all it wants. And it has to, because the group has nothing else.  Under existing law companies do indeed pay their fair share as evidenced by the facts.  Raising energy taxes, as the American people well understand, is simply a bad idea.

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.