We announced our second quarter earnings yesterday, and afterward I talked with some reporters not only about our financial performance, but also about some of the key policy issues affecting our industry. The main item of discussion concerned current tax proposals that could be seriously damaging both to the U.S. oil and gas industry and the economy in general.
At a time of historic economic weakness in this country, I indicated I was concerned by Administration proposals to impose new punitive taxes on one of the few industries that has been contributing to the U.S. economy rather than receiving a bail-out. Unfortunately, instead of supporting an industry that is an engine of growth in this country, there is a push for $80 billion in new taxes on the industry.
I gave reporters two examples of efforts to change parts of the tax code that some in Congress and the Administration consider “subsidies.” The first is a proposal to repeal section 199 of the Internal Revenue Code, which is a deduction designed to help all industries create jobs in the U.S. The repeal, however, would apply only to the oil and natural gas industry. I’ve talked about it in a previous blog post criticizing the New York Times’ support for this repeal.
The other example involves efforts to effectively eliminate the foreign tax credit – resulting in double taxation of earnings outside the United States. Here are the details I shared:
- Currently, the foreign tax credit enables all U.S. companies to operate and produce goods and services in other countries without taxing profits twice—once by the host country and once again by the home country. This allows U.S. companies to have a level playing field among foreign competitors.
- The changes the Administration proposes would force U.S. oil and gas companies to pay a double tax on income from our foreign operations by eliminating this credit – and therefore creating a huge competitive disadvantage.
- Oil and gas companies from Europe (BP, Shell, Total, etc.) and elsewhere would continue to incur only one level of taxation in almost all cases, while their American counterparts would have to pay twice.
- A look at some large American oil and gas companies shows that while almost 80 percent of our 2009 net profits are from foreign sources, almost 50 percent of our workforce is in the U.S. Many of these U.S. jobs will be at risk if the companies were to lose market share to foreign competitors.
Some are trying to push through these changes under the preconceived notion that oil and gas companies don’t pay their fair share. Nothing could be further from the truth. In fact, the industry’s 2008 income tax expenses averaged 53.2 percent, compared to 32.2 percent for the S&P Industrial companies. ExxonMobil alone paid $63 billion in taxes over the past five years, an amount that exceeded our U.S. earnings during that time by $19 billion.
You can read more about industry taxes on the American Petroleum Institute’s website, but I’d also like to hear what you have to say about taxing “big oil.”