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Outside View: Energy companies' taxes
by Gary Hufbauer | Scott Hodge
Washington (UPI) Nov 1, 2012


disclaimer: image is for illustration purposes only

For 58 million Americans who tuned into the first presidential debate, the candidates pictured two unlikely villains -- Big Bird and Big Oil. While Big Bird has since been used in amusing campaign ads, disparaging the oil and natural gas industry is more worrisome considering energy is a fundamental part of the U.S. economy.

On the campaign trail and in office, President Barack Obama has repeatedly called for the repeal of what he spins as "subsidies" for oil and gas companies. This has become an old-shoe message. But in the first presidential debate, the president asked a bit more pointedly: "Does anybody think that Exxon Mobil needs some extra money, when they're making money every time you go to the pump?"

It's a fairness issue, the president argues. Oil and gas companies should pay more because they make more. Forgotten in this rhetoric is that oil and gas companies already shoulder their share of the national tax burden, and then some.

In 2011, the oil and gas industry paid an effective tax rate of more than 40 percent; the average Standard and Poor's corporation, by contrast, paid about 25 percent. Last year Exxon Mobil, which the president singled out, paid a tax rate more than 30 percent -- about $1 billion a month.

In fact, the oil and gas industry has historically paid more in taxes than it makes in profits. A Tax Foundation study, which tracked data from 1981 to 2008, found oil companies' tax payments exceeded their profits by 40 percent during that period. That totaled more than $388 billion in revenue paid to federal and state governments. And those taxes continue to grow. In 1999, for example, the industry paid more than double its profits in taxes.

Oil and gas companies do make a profit when people fill up their tanks. This is Business 101. Profits are good for shareholders, good for consumers and good for communities. Profits deliver revenues to state coffers and finance investment. In 2011, the oil and gas industry invested more than $36 billion in the United States. The Progressive Policy Institute listed four U.S. oil and gas companies in its top 10 "Investment Heroes" ranking.

Still, in every budget Obama has submitted to Congress since taking office, he has called for repealing tax incentives for oil and gas companies. These are important provisions. Some shield U.S. firms from being taxed twice on profits earned abroad. They aren't unique to the oil and gas producers -- in fact, they are available to every sector of the economy. Companies like Apple and GE pay corporate tax under the same rules.

But the call to repeal is uniquely targeted at oil and gas and, as a policy brief by the Peterson Institute points out, tax discrimination of one sector will penalize the entire economy. These targeted tax deductions for oil companies totaled $2.8 billion last year. By comparison, tens of billions have been directed toward the solar and wind energy industries.

Voters have a right to be upset with gas prices. But the president's own policies have done little to bring prices down and, in fact, probably moved them in the opposite direction. Earlier this year the president postponed the Keystone XL pipeline, which would have transported a reliable source of North American oil from Canada to U.S. refineries. Offshore drilling permits have been cut to a fraction of historical levels and the administration has cut oil and gas developments on public lands in half.

At the same debate, former Massachusetts Gov. Mitt Romney, long an advocate of energy independence, bent to say he would consider pulling back some of the tax provisions in place now. Those calls seem to conflict with the goals of job creation and faster economic recovery. The oil and gas industry currently supports more than 9 million jobs in the United States and studies estimate that it could create an additional 1.4 million jobs by 2030.

Listening to the candidates in the first debate, the oil and gas industry seems like a disobedient child. In fact, the industry is a cornerstone of the U.S. economy, even more so with the energy revolution brought about by hydro-fracture technology ("fracking").

President Obama and Governor Romney have both laid out bold plans for America's future. Whoever takes office in January 2013 will need the oil and gas industry's help to realize these ambitions.

(Gary Hufbauer is a senior fellow at the Peterson Institute for International Economics and Scott Hodge is the president of the Tax Foundation.

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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