Tuesday, June 05, 2012

Why We Should Keep Tax "Loopholes" for Oil

Deborah Byers of Ernst & Young explains in Forbes why we should keep the current tax provisions for oil and gas companies, here's an excerpt:

"For the most part, energy companies are treated just like any other industry when it comes to taxes.  Much of what politicians call giveaways are simply timing issues related to when particular items can be expensed – governed by provisions in the tax code established decades ago to strengthen U.S. energy production.  These provisions are not tax credits, which allow for a dollar-for-dollar reduction in tax liability.

Changing the current tax code might make lawmakers happy, but it won’t achieve its hoped-for objectives and, in fact, will do the opposite:
  • Integrated majors like ExxonMobil won’t be affected meaningfully
  • Cash-strapped independents will be hit hard
  • Domestic production will be depressed
  • Job growth related to the shale boom will stall
  • Tax revenue will fall
The technology advancements that are driving the shale boom, coupled with the existing tax code, have put the U.S. in a position not seen in years – one where domestic production is high and new reserves are creating economic opportunities across the country.  If we want to increase security of supply, keep retail energy prices low and create high-paying jobs, our energy policy should encourage future drilling by allowing proven tax provisions to remain in place."

20 Comments:

At 6/05/2012 4:28 PM, Blogger juandos said...

Well if the state and federal government dump the excise taxes on gasoline/diesel sales then maybe it might be time to reconsider some of these alledged loop holes...

 
At 6/05/2012 6:13 PM, Blogger Che is dead said...

"As of the third quarter of last year, the oil industry earned just 6.7 cents per dollar of revenue, less than the average for all manufacturing of 9.2 cents ... even after a spike in prices, the oil industry ranks 90th in profitability out of 215 industry groups ... employs 9.2 million people and accounts for 7.7% of the total U.S. economy. Oil and gas companies in 2010, the last year for which all data are available, paid 41.1% of their net income on income taxes. That compares with 26.5% for other industrial companies listed by Standard & Poor's." -- IBD

"According to data from the Federal Reserve Board's Industrial Production Indexes, the oil and gas industry, which the Obama Energy Department loathes, has had more growth in output than any other manufacturing industry in the U.S. from 2005 through 2011. As a reward, the administration is proposing $35 billion in new taxes on the industry to slow it down. Even if we accept the dubious White House claim that all the oil and gas tax write-offs are unwarranted loopholes, a 2011 Congressional Research Service study finds that per unit of electricity produced, for every two cents of tax subsidy to Big Oil, Big Green (wind and solar) get closer to $1 in handouts." -- WSJ

Oil Companies Pay More In Taxes Than They Earn In Profits

 
At 6/05/2012 6:41 PM, Blogger morganovich said...

marmico-

please name for me one "tax loophole" enjoyed by the oil industry that is not also allowed for any other business on its taxes.

oil and gas face more taxes than other industries, not fewer.

http://www.instituteforenergyresearch.org/2012/04/06/the-obama-administrations-dishonest-claims-on-big-oil-tax-giveaways/

they just expense R+D and depreciation like any other company.

XOM pays more in taxes as a % of revenues than any other major us company. the number is close to 70%.

calling that a sweetheart deal is complete nonsense.

 
At 6/05/2012 6:43 PM, Blogger juandos said...

"Sure the oil and gas industry needs another $200 BILLION of tax loopholes"...

Oh please marmico, tell me you're not seriously taking leaky Leahy's word for anything!!

 
At 6/05/2012 8:30 PM, Blogger arbitrage789 said...

What the political left will never admit is that if we raise the after-tax cost of acquiring domestic oil, we'll get less domestically produced oil.

A pretty simple concept, but the left will never admit it, because the very LAST thing that these politicians are concerned about is economic growth. (And they apparently don't care about the taxes that would accrue from such economic growth either).

 
At 6/05/2012 10:04 PM, Blogger randian said...

What the political left will never admit is that if we raise the after-tax cost of acquiring domestic oil, we'll get less domestically produced oil.

Perhaps that's the point of the exercise. The left are notorious Arabists.

 
At 6/05/2012 10:41 PM, Blogger arbitrage789 said...

Randian,

Actually, they "kill 2 birds with one stone".

They appease the environmentalists, and they appease the idiots who think that U.S. oil companies determine the global price of WTI crude oil.

Then there are still other idiots who don't understand that 100% of the taxes paid by corporations are ultimately born by individuals

 
At 6/06/2012 6:04 AM, Blogger Ed R said...

All industries want tax breaks. But not every industry has the clout to get Forbes to do their special pleading.

 
At 6/06/2012 6:12 AM, Blogger Ed R said...

" . . . please name for me one "tax loophole" enjoyed by the oil industry that is not also allowed for any other business on its taxes."


According to the CBO Congressional capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

You are welcome.

 
At 6/06/2012 6:15 AM, Blogger Ed R said...

" . . . please name for me one "tax loophole" enjoyed by the oil industry that is not also allowed for any other business on its taxes."


If the oil industry is not currently enjoying any tax loopholes, why is Forbes (and this blog) telling the world why the oil industry deserves to keep its tax loopholes.

 
At 6/06/2012 6:45 AM, Blogger Methinks said...

Ed R seems to be defining "tax loophole" as any activity or income that goes untaxed.

Any amount the government doesn't confiscate is a "loophole" that the government has generously given you to ease your serfdom. After all, doesn't all belong to Caesar?

These tax "loopholes" are merely accounting treatments that are available to every single U.S. company. Hell yes, the oil industry deserves to keep them as much as any other industry. Furthermore, when you factor in the tax of regulation, the tax rate for oil companies operating in the United States is astronomical.

 
At 6/06/2012 7:28 AM, Blogger Ed R said...

Another tax 'loophole' that is a direct benefit to oil companies at the expense of the U. S. Treasury (that Ms. Byers seems to have overlooked):

The US tax code allows oil companies to include "tax credits" (i. e. deductions from their federal income taxes owed) on payments to foreign governments. It is another subsidy dating from the 1950s, which allows U.S. based oil companies to reclassify the royalties they are charged by foreign governments as taxes. Those can then be deducted dollar-for-dollar from their domestic tax bill.

 
At 6/06/2012 8:05 AM, Blogger Methinks said...

Ed R,

Anything but 100% of so much as your POTENTIAL income comes at the expense of the U.S. Treasury, by your logic.

Everything you produce belongs to your political overlords and anything below a tax rate of 100% comes at their expense.

In fact, to be more fair to the crown, every U.S. dweller and entity should really be forced to meet a certain burden to prevent them from refusing to work. Everyone should start the year with a debt to the U.S. government. If you don't produce enough to pay off the debt, you should go to jail. Of course, everything you make above that debt should also be confiscated - so as not to cost the U.S. Treasury, of course. We wouldn't want that.

 
At 6/06/2012 8:33 AM, Blogger Moe said...

http://www.washingtonpost.com/business/economy/how-much-do-oil-companies-really-pay-in-taxes/2011/05/11/AF7UNutG_story.html

 
At 6/06/2012 9:10 AM, Blogger morganovich said...

"
If the oil industry is not currently enjoying any tax loopholes, why is Forbes (and this blog) telling the world why the oil industry deserves to keep its tax loopholes."

because credulous populists like you believe in them. did you even read the forbes article? it mostly describes how the "loopholes" which, you may note, it puts in quotes for a reason, how these "loopholes" are just the same things every company does.

seriously ed, you are making quite a habit of ill informed commentary as a result of not reading the piece on which you are commenting.

 
At 6/06/2012 9:11 AM, Blogger morganovich said...

ed-

"The US tax code allows oil companies to include "tax credits" (i. e. deductions from their federal income taxes owed) on payments to foreign governments. It is another subsidy dating from the 1950s, which allows U.S. based oil companies to reclassify the royalties they are charged by foreign governments as taxes. Those can then be deducted dollar-for-dollar from their domestic tax bill."

the us tax code allows ANY COMPANY to do this. google does it. apple does it. ge does it.

this is not an oil company specific law. it's a law for all us corporations.

now you are just displaying your ignorance.

 
At 6/06/2012 9:18 AM, Blogger morganovich said...

ed-

read the XOM 10q.

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=8588753-8340-9345&type=sect&dcn=0001193125-12-208076

you will find that XOM is one of the most heavily taxed entities in the entire world.

last q:

19 bn in sales taxes and other duties (mostly not faced by any other kind of company)

nealy 8bn in income tax (on 17.5bn income, a 43% rate, 8 full points above the us max)

altogether they paid 27bn in taxes on 49 million in gross profits after the purchase of oil, a staggering 55% rate before any costs of doing business were accounted for.

total taxes paid were 152% of net income.

find me ANY non oil company that pays a tax rate like that.

you can't because they do not exist.

you really ought to try getting some information before offering such unfounded opinions.

 
At 6/06/2012 8:18 PM, Blogger Ed R said...

Re: royalties paid to foreign govts classified as "income taxes" qualifing as US tax credits for oil companies.

" . . .the us tax code allows ANY COMPANY to do this. google does it. apple does it. ge does it.

this is not an oil company specific law. it's a law for all us corporations."

Don't think Google or Apple pay royalties to foreign govts, don't know about GE.

 
At 6/06/2012 8:20 PM, Blogger Ed R said...

And BTW:

In 2009 Exxon-Mobil paid zero US Federal income taxes. (They actually got a net tax credit}.

Yes, they did pay US Federal income taxes in 2010, 2011, etc.

 
At 6/07/2012 1:59 AM, Blogger Ron H. said...

"And BTW:

In 2009 Exxon-Mobil paid zero US Federal income taxes. (They actually got a net tax credit}.
"

And your point is...

 

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