Correction: American oil and gas companies DO pay higher tax rates than most other corporations

Congress is back at work this week, and the Senate has already taken up the issue of raising taxes on the oil and gas industry.

This time, the Senate got it right by rejecting Senator Bill Nelson’s amendment to the Small Business Bill. Part of the amendment would have eliminated a manufacturing and production tax provision – but only for the five major integrated oil and natural gas companies. This provision, known as Section 199, was intended to help all U.S. manufacturers and producers create well-paying U.S. jobs. Getting rid of this deduction for just our industry – rather than for all taxpayers – would endanger some of the 2.1 million U.S. oil and natural gas worker jobs as well as the 7.1 million jobs supported by America’s largest energy companies.

Regular readers of Perspectives have heard me talk about tax issues throughout the summer. That’s because there are widespread misconceptions about the taxes we pay as U.S. oil and gas companies, as well as the tax provisions for which we qualify.

For instance, take a look at what Jason Furman, one of the president’s advisers, said on a conference call with reporters just last week:

“Big oil companies actually pay lower tax rates on their profits than do most other corporations,” he said. “Get rid of those tax breaks so the big oil companies are being treated just the same as every other corporation when it comes to taxes.”

This simply isn’t true, and I challenge reporters who hear these statements to take a look at the facts before they print such sweeping assertions.

  • A Compustat North American Database analysis shows that the 2009 income tax rate for U.S. oil and gas companies was about 48 percent, which was 20 points higher than the rest of the S&P Industrials.
  • According to the government’s own Energy Information Administration, from 2004 to 2008, 27 American oil and gas companies – which actually make up under half the total oil and gas production in the U.S. – paid almost $150 billion in U.S. income taxes.
  • Additionally, those companies paid other non-income taxes of more than $300 billion, for a total U.S. tax contribution to federal, state, and local governments of more than $450 billion.
  • Keep in mind, too, that Sec. 199 – the manufacturing and production tax provision that Furman would likely call a “tax break” for “big oil” – actually benefits other industries more than it does oil and gas companies.

What’s almost more disturbing, however, is the context in which Mr. Furman made this remark. The Administration needs money to fund a proposed $50 billion stimulus package. To pay for it, the Administration is singling out the U.S. oil and natural gas industry for tax hikes, and making statements that lead people to conclude that oil and gas companies aren’t paying their fair share.

The numbers above are proof that we pay more than our fair share.

There’s only a certain amount you can tax anyone – individuals and companies alike – before you begin to weaken their ability to compete in the global marketplace and thus provide the jobs essential to our economic health.

In fact, Louisiana State University’s Joseph Mason has estimated in a recent study that the Administration’s plan to eliminate or exclude U.S. oil and gas companies from certain tax provisions could amount to 154,000 lost jobs across the economy by the end of next year and more than $341 billion in lost economic output over the next decade.

The history of raising taxes on domestic oil and gas production is very clear, supported by numerous independent academic and government studies:  When you raise energy taxes, you get less jobs, less economic activity and less energy security for the United States.

Take a look at some of my other tax policy posts to learn more about the specific tax issues affecting our industry.


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