EnergyFactor By ExxonMobil | Pespectives has a new home

Yet another attempt to undermine the nation’s energy industry

There’s a letter making the rounds this week in Washington from a number of Democratic Senators, asking for congressional support to remove tax provisions that help enable the oil and natural gas industry to create jobs and contribute billions in tax revenues to federal, state and local governments across the nation.

While the letter wasn’t sent to ExxonMobil, I think it’s important to address the claims made in it, for two reasons: first, because they are incorrect; and second, because punishing successful companies won’t do anything to help restore our economy.

It’s just another unfortunate attempt to attack an industry that supports more than 9.2 million jobs, adds $1 trillion to the national economy – or 7.5 percent of GDP – and contributes billions in tax revenues to federal, state and local governments.

In fact, the letter’s authors went so far as to say that our industry “adds little to our economic and energy security.” These comments come as some surprise given that our industry is responsible for providing more than 60 percent of America’s daily energy needs, and invests in a wide range of technologies to increase and diversify the nation’s energy supplies.

Without any evidence, the authors refer to “tax loopholes and other subsidies that benefit big oil and gas companies.” The most often cited such provision is the Section 199 domestic manufacturers’ deduction.  This tax provision applies not only to U.S. oil and natural gas companies like ExxonMobil, but to all qualified U.S. manufacturers. In other words, American automakers, software developers, newspaper publishers, alcohol and tobacco companies – all these industries benefit from the Section 199 deduction.  To suggest oil and gas companies are the sole beneficiaries of this provision, and to label it a  “loophole” for “Big Oil” is misleading.

The suggestion is even more disconcerting given that the U.S. oil and natural gas industry currently benefits less from this tax provision than all other qualified industries.  All U.S. manufacturers can claim a 9 percent deduction – except the U.S. oil and natural gas industry, which can claim only 6 percent.

So what’s their justification? They imply that  the Section 199 deduction and other tax provisions should be repealed for our industry because “oil and gas companies are doing just fine.”  ExxonMobil has indeed reported strong earnings recently, to the benefit of our millions of shareholders, many of whom are middle class Americans and participants in U.S. government pension and mutual funds, such as the Thrift Savings Plan. In fact, we distributed $19 billion to shareholders in 2010 alone through dividends and share purchases.

The fact that these earnings appear large in absolute terms is a reflection of the scale of the energy industry, which supports U.S. economic activity through the reliable fuels we provide and the electric power we enable.  In relative terms, however, the U.S. oil and natural gas industry’s earnings are consistent with U.S. manufacturing in general. Over the last five years, for example, earnings for the oil and natural gas industry have been in line with the broader manufacturing sector – averaging about 7 cents for every dollar of sales.

To eliminate the tax provisions to which these lawmakers refer would amount to a punitive tax increase on the U.S. oil and gas industry.  Currently, our industry is one of the nation’s largest taxpayers.  From 2005 to 2009, ExxonMobil’s U.S. taxes totaled $63 billion – $19 billion more than we earned in the United States during this period, and an amount that exceeds the entire proposed budget of the U.S. Department of Education for fiscal year 2011.   Furthermore, our effective tax rate in 2009 was 47 percent – approximately 20 percent higher than the average of all other Standard & Poor’s Industrials, according to a recent study.

To increase our tax expenses by repealing the Section 199 deduction and tax provisions would jeopardize the U.S. oil and natural gas industry’s future investments in the United States, as well as our ability to continue being a reliable generator of goods, services, jobs and government revenues.

Given our industry’s enormous contributions to American job creation, manufacturing production, and middle class prosperity – and the importance of the domestic energy sources we produce to our economic and our energy security – I hope people look at the facts before believing these attacks on one of the key foundations of the U.S. economy.

  • Worth a deeper look...