Targeting the oil and gas industry for higher taxes has become an annual event, and 2013 should be no exception. With the major investor-owned oil companies set to announce 2012 year-end earnings, you can already hear the sound bites from politicians looking to the oil and gas industry to “contribute” even more as Washington searches for new streams of revenue.
But the fact is oil and gas companies already pay $86 million dollars every single day to the federal government in rents, royalties, bonus payments and income tax payments.
And when politicians talk about higher taxes for oil companies, chances are they’re really talking about taxing you.
That’s because the major publicly held oil and gas firms – the so-called “Big Oil” companies – are owned by an extremely broad-based cross section of individual and institutional investors. In the case of ExxonMobil, more than 85 percent of our shareholders live in the United States. Efforts to raise taxes on companies like ExxonMobil are, by definition, efforts to raise taxes – and reduce shareholder returns – for the millions of shareholders who own oil company stocks either directly or through retirement and pension funds.
Many don’t even know it.
Private and public pension funds – managing assets on behalf of more than 60 million U.S. households in 145 million accounts – own nearly a third of all shares in U.S. oil and gas companies, according to the American Petroleum Institute. Mutual funds and individual retirement plans account for nearly 40 percent more.
Politicians arguing for higher oil company taxes want you to think they’re taxing corporate executives – but the reality is that industry executives own less than three percent of oil and gas company shares, and only half of one percent of the shares of the largest, integrated oil companies.
You don’t have to own shares in oil companies to benefit.
Public sector and teachers’ retirement funds in states like New York, California, Texas, Ohio, Colorado, Alabama, Tennessee, Alaska, Kentucky, Utah, Michigan and Pennsylvania own holdings in ExxonMobil and other oil companies – holdings which have provided healthy returns at a time when other stocks and economic sectors have struggled, relieving the need for additional public funding to pay for retirement benefits.
Consider for a moment the effect of raising taxes on the oil industry for the millions of Americans who own shares indirectly through their pension funds. As economist Diana Furchtgott-Roth noted last year (emphasis mine):
In the State of New York, for instance, oil and gas investments in the two largest pension plans, the State Employees’ Retirement System and the Public School Employees’ Retirement System, contributed 21 percent of the funds’ return [for FY 2005-2009]. Higher taxes on oil and gas companies would hurt New York’s taxpayers, who would have to put more into the funds to make up for their lower returns. … Oil and natural gas companies represent a small proportion of total investments in retirement accounts, yet account for a larger share of the return on these investments. Raising taxes on oil and gas would reduce the return on investment, and the returns to these retirement funds.
In a newspaper op-ed earlier this week, one fund manager nicely summed up what the industry’s contributions means to the retirement funds for teachers, police officers and numerous public and private sector workers. “American stockholders have a big stake in successful corporate performance,” he wrote. “Often, their retirement dreams depend on that success.”
The performance of oil and gas companies in retirement accounts has been a rare bit of good economic news in recent years. Heaping further taxes on an industry that pays tremendous sums in taxes (ExxonMobil’s effective U.S. tax rate in 2011 was 31.4 percent) threatens to turn those dreams into sleepless nights for millions of American investors.