CANDIDATES DISAGREE ON OIL COMPANIES' TAX RATE
October 16, 2008
ExxonMobil (XOM) earned after-tax profits of $41 billion and paid $14.5 billion in worldwide income taxes in 2007 -- the highest in corporate history in both categories. The world's largest oil company is on track to smash both records in 2008, despite a recent decline in oil prices. Should it pay higher taxes?
- Democratic presidential nominee Barack Obama wants to impose a "windfall profits tax" on oil companies and use the money to provide tax rebates of $500 for most individuals and $1,000 for most married couples.
- Republican nominee John McCain opposes the idea; instead, he wants a dramatic cut in the top corporate income tax rate -- to 25 percent from 35 percent -- that would save ExxonMobil and other oil companies several billion dollars a year.
- Both candidates, however, want to close some "loopholes" that let Exxon and other oil companies save several billion dollars a year in taxes.
But whether oil companies should pay higher taxes is clouded by an unusual twist: the companies are already heavily taxed compared with other U.S. industries, but are lightly taxed compared internationally, says USA Today:
- In 2007, ExxonMobil would have paid an extra $1.3 billion in income taxes if the U.S. tax rate matched those of foreign countries; it would have paid $1 billion less if it had been taxed at the average 22 percent rate in the United States.
- The U.S. Energy Information Administration (EIA) estimates that foreign tax increases cost oil companies an extra $10 billion in 2006.
- Some states have raised their own oil taxes to capture more revenue; the federal government's decision not to do this is at the heart of the debate.
Sen. Obama helped create some of the tax loopholes he now opposes when he voted for the Energy Policy Act of 2005. Despite his current opposition, these tax breaks seem to be working, says USA Today:
- Domestic oil production will rise 1.8 percent in 2008, the first increase in more than a decade.
- Even with the tax breaks, oil companies paid $31 billion to the federal government in 2006, up from $12 billion in 2004.
Source: Dennis Cauchon, "Candidates disagree on oil companies' tax rate," USA Today, October 14, 2008.
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