Capping the Oil Profits Gusher

You know the gas price problem is getting bad when even leading Republicans need to make noise about petroleum industry tax breaks.

John Boehner caused a stir the other day when he seemed to be telling an interviewer from ABC News that he was in favor of cutting federal subsidies for the oil giants. “It’s certainly something we should be looking at,” he said.

My initial reaction was that a Boehner look-alike working with the Yes Men had made the remarkable statement. Alas, it turned out to be a tease or a case of temporary sanity, for Boehner’s people later clarified that the Speaker was not actually calling for reductions in the giveaways. Perhaps he meant to say that we should examine the subsidies to be sure they are high enough.

Before Boehner’s true position became clear, President Obama seized on the moment to remind Congress about the Administration’s proposal to do away with “unwarranted” oil industry tax breaks. Such a move would be welcome but far from adequate.

Consider the size of those tax breaks. The Administration’s 2012 budget estimates that the repeal of eight oil & gas tax preferences would save all of $3.5 billion in 2012. The amount would rise to $5.4 billion in 2013 and then fall to $4.6 billion by 2016. The total increase in federal revenues over five years would be only $23 billion.

Compare these amounts to the profits being reported by the U.S.-based oil supermajors. For 2010, Exxon Mobil alone posted total profits of $30 billion, up 58 percent from the year before. Chevron’s net income was $19 billion and that of ConocoPhillips $11 billion. This year those amounts are expected to soar again.

If the entire loss of tax breaks were to be shouldered by these three companies alone, their combined profits would sink by only a couple of percentage points.

Rather than simply eliminating some subsidies, now is the time to revive the push for a windfall profits tax. That will not be music to the ears of Obama, who had made the idea a centerpiece of his 2008 presidential campaign, only to drop it shortly after being elected. That plan was expected to collect $65 billion over five years—much more than the savings from eliminating current tax breaks—and the proceeds were meant to help people pay for higher energy costs, not to make a small dent in the national debt.

Corporate apologists say that the federal government has no reason to complain about galloping oil industry profits because it collects more in tax revenues. Unfortunately, that federal share has been shrinking. In 2008 Exxon Mobil paid about $3 billion to Uncle Sam on pretax U.S. earnings of $10.1 billion, or about 30 percent. Last year Exxon’s domestic federal tax rate was only 16 percent. The rates paid by Chevron and ConocoPhillips also fell sharply. Moreover, Exxon and Chevron pay meager amounts of state income tax.

Rather than mitigating the profits windfall, the tax system—as manipulated by the oil giants—is exacerbating the problem.

It’s difficult to believe, but an oil industry windfall profits tax was once part of the mainstream policy agenda, even in the Republican Party. In his 1975 State of the Union Address, President Ford promoted the idea to compensate for the elimination of controls on domestic oil prices. In 1980 Congress enacted such a tax (actually an excise tax on crude oil) that remained in place for eight years.

Conventional wisdom these days is that aggressive tax policies—not to mention price controls—are counter-productive. Yet even Big Oil seems somewhat uncomfortable about its good fortune.

The American Petroleum Institute issued a press release the other day that used an unusual argument to try to blunt popular anger over the industry’s embarrassment of riches. API touted a new study purporting to show that oil and gas stock holdings have been providing a big boost to public pension funds.

Those would be the same public pension funds that are said to be desperately underfunded because of shortfalls in, among other things, corporate tax payments by the likes of the oil giants. Rather than depending on a bit of indirect capital appreciation, we would be much better off if the petroleum industry paid higher federal and state tax rates, especially when oil prices—and thus profits—are going through the roof.

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