Luke Ottaway's picture

In case you haven’t heard, Big Oil is pretty much the worst

A new study has found that oil and gas giants paid an effective 11.7% federal tax rate in the United States from 2009 to 2013 against 46.2% abroad. Though they aren't the only villains, we are putting too much money back in the pockets of oil and gas corporations.

What would happen if you paid less than half of the taxes you owed to the federal government, then wrote Uncle Sam a note saying you’d get him the rest at some undisclosed future time? If you’re an ordinary taxpayer, you would be in pretty big trouble.

If you are one of the 20 largest oil and gas companies in the United States, however, you get a pat on the back and perhaps a new tax code loophole for next time.

Many large companies and industries excel at avoiding federal income taxes (at least in the United States), some to a jaw-dropping degree. However, the oil and gas companies are by and large the richest of these tax dodgers. Though they generally pay the most in federal income taxes due to their huge profits, it is what they should be paying that frustrates the average American citizen.

Brace yourself for the numbers

Okay, we’ll get straight to it. Taxpayers for Common Sense recently released the results of a study that analyzed the tax filings of the 20 largest U.S.-based oil and gas companies, and it isn’t pretty.

According to the study, Big Oil collected $133.3 billion in pre-tax income from 2009 to 2013 and reported total federal income taxes owed of $32.1 billion. That seems like a lot of money until you realize that the 24% tax rate these dinosaur-sucking giants are accountable for is probably about what you pay, and is far less than the statutory federal income tax rate of 35% paid by the rare civic-minded company.

But wait, it gets worse. The oil and gas corporations – the biggest of which, accounting for 84% of the income of the 20 companies in the study, are ExxonMobil, ConocoPhillips, Occidental, and Chevron – actually paid only $15.6 billion in federal taxes over the five-year period. The remainder was deferred.

This adds up to a paltry 11.7% current tax rate. Sure, those companies in theory will have to pay that deferred $16.5 billion at some point, but does anyone really believe that will happen? Certainly not in the current political climate.

How else could we spend $31 billion?

For those keeping track at home, if oil and gas companies were held fully responsible for the statutory tax rate an extra $31 billion would have been injected into the American economy in the last five years.

Instead, it was effectively injected into the ground in the form of more oil and gas exploration and drilling that will become increasingly desperate as the glory years of Big Oil begin to slip away.

I can think of quite a few ways to spend the $31 billion that the United States is owed by these oil and gas companies. As an electric vehicle reporter for Torque News, I’ll first point out that $31 billion could fund the installation of 206,667 multi-vehicle 120-kW Tesla Supercharger stations capable of charging a Model S to 170 miles of range in a half hour.

For you hydrogen fuel cell advocates out there (misguided though some of you may be) $31 billion could install anywhere from 62,000 to 124,000 hydrogen refueling stations. Heck, $31 billion devoted to battery research could produce miraculous developments in cell technology that would render gasoline vehicles obsolete.

But just think of all the other sectors that need attention and are at the mercy of tightening budgets: education, infrastructure, public transit, the military...

Just checking to see if you haven’t already abandoned this article to grab your torch and pitchfork.

Put a stop to the madness, please

I do not claim to be an expert on taxes or the oil and gas industry by any means. I am very good, however, at pointing out the obvious. And in this case, it is obvious that the oil and gas industry is receiving help it does not need from the federal government.

The five biggest oil companies in the world (three of which are based in the States: Chevron, ConocoPhillips, and ExxonMobil – the other two are BP and Royal Dutch Shell) brought in $48.6 billion in profits through just the first half of the year. These folks are doing just fine for themselves without tax loopholes, thanks.

Speaking of loopholes, the group of U.S.-based companies in the study were far more generous to foreign governments than they were to their own. The income tax rate paid to foreign governments totaled 46.2% of foreign pre-tax income, and since other governments don’t offer loony things like deferments the oil and gas companies actually paid 99% of the $254.2 billion they owed to foreign governments from 2009-2013.

How does Big Oil pull it off here in the United States? Well, here is a big hint: the five biggest oil and gas companies have spent $23 million so far this year just to lobby politicians to continue the current arrangement.

The oil and gas industry ought to be held accountable for its business practices. There is no sane reason to continue to offer lavish incentives to the companies that, if given the opportunity, would pump the atmosphere full of carbon dioxide until the day their executives died of heat stroke. Regardless of what the federal government did with the money if it enforced proper tax rates, that money would do a lot more good out of the hands of Big Oil.

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Your headline says big oil is "the worst." I'm willing to be convinced. Which industry (or industries) had 5 companies that paid more federal tax overall? Did any industries have a lower effective tax rate? If so, aren't those industries "The worst?" You don't give any comparisons. You say from 2009 to 2013 the top 5 oil companies paid $15 billion in federal tax (and deferred much more, according to the story). That sounds like a lot of money paid on profits. How much did the top 5 automakers pay in US federal income tax over that period? My understanding is that GM cost the US taxpayers roughly 10 billion over this same period. So wouldn't GM be worse? What is the typical effective tax rate of other types companies that do business on this scale for comparison, and how many real dollars did they pay in taxes? For example, what was the solar panel manufacturing industry's effective tax rate over that period? How about the health insurance industry? Farming? How much federal tax did the 5 largest US universities pay over that period on their earnings? You brought up Tesla in the story. What was Tesla's federal tax paid over the period? - I looked at the link and it does not mention any other comparison industries either. Is Taxpayers For Common sense outraged at other industries like farming, solar and other industries that receive special tax treatment?
"The worst" is simply an expression, not a claim that nobody is worse than oil companies (although I think I could make a convincing argument on grounds aside from tax rates). I wasn't necessarily saying that no other industries or companies get unfair tax fact, many do. The Big Three automakers have paid very little in taxes in recent years, for example. This report offers an excellent breakdown of corporate tax rates and just how many companies wiggle their way out of taxes in the States: Summary My intent was to highlight the scale of the benefits enjoyed by oil and gas companies. Yes, they are some of our biggest taxpayers, but what matters is the percent of income rather than the dollar amount. There is also a huge difference between what oil and gas companies pay in total income tax and what they pay to the United States - other countries tax them far more heavily.
I understand your viewpoint, but I can't agree with it. I'm just a numbers geek. The link you include above in the section called "Who's paying corporate taxes and who's not" - that is the second link down on the page - says, if I read it right, that 41% of companies pay less than 17.5% as an effective rate. That is the group the oil companies are in with their 11.7 rate. So the oil companies are certainly not alone, nor are they even in the group that could be called "Worst." GE is a massive company and its revenue rivals any large oil company (you brought up revenue in your "pretax-income" comment). GE paid less than zero. Less than zero compared billions is sure an argument that the oil companies are not the worst. Or even bad. So did Verizon. So did Boeing. PG&E, Pepco. The list of huge companies with billions in "pre-tax-income" that paid NO federal tax over this period is long and distinguished. - Feel free to make a case that big oil is bad. They are an easy target. - Saying they are bad for tax reasons is really not working for me. Feel free to write a factual story that says "Tax breaks are bad and here are the huge companies that pay the least by percent" and the oil companies don't even make that list. You don't give any examples of tax breaks they get that are more unfair than the tax breaks other industries like mining, farming, education, health care, etc. receive. I don't mind if other countries tax companies higher. I want that because it then means that the US is more competitive and companies might want to do business here, and pay some taxes here. Some. Many pay none. Let's pick on them.
Very well, I'll remove the word "worst" from the title. As I pointed out, it was a reference to the collective practices of the oil industry, not just their tax dodging (which it is clear that most major corporations do to some degree.) You're missing the point of the article...I frankly don't care how fair or unfair the tax breaks are relative to any other company or industry, I simply chose to demonstrate that they are unreasonable for an industry that rakes in as much profit as the oil and gas industry does. There is barely enough space on the internet to mention every tax injustice in corporate America (particularly on an automotive news website), but sometimes it's just entertaining to put in perspective just how much money these companies avoid paying in taxes. An 11.7% tax rate is much more significant when every percentage point means well over $1 billion in avoided taxes.
While I like your writing, Luke, I suspect you wrote this based on the press release for the study without reading the study itself. Had you done so, you'd have noted that this study based taxes "owed" on INCOME, not PROFIT and the deferrals were mostly for expenses paid for long-term equipment and costs, sort of like when you buy a new computer and take tax credits over three years for it. These companies are taking deferrals based on expected expenses going forward. Now for your "civic minded" comment.. :) I would be very willing to bet that the majority of Americans pay as little in income tax as possible. This would be bolstered by the fact that over half of Americans (who file) don't pay in at all and come out a wash or get more in return than paid in - theIRS (not a typo) estimates that nearly 20% of those who should file taxes don't. Otherwise, everyone would just fill out EZ forms and pay the maximum like good little "civic minded" automatons. Right? :P
Some good points. I'll admit that I don't know many people who don't try to pay the minimum legally allowed in taxes. I did realize, however, that the tax figures were for income rather than profit...that's only logical. I don't get taxed on the money I have left over after I pay my rent and bills, right?
That's because theIRS assumes all of the money you make is "profit" as an individual. Businesses usually have higher expenses than they do profit, so taxes are specifically only on profits. Further, as an individual, you have an automatic deduction just for existing (aka "poverty level"). Businesses don't have that.