Reducing Profitability of Oil Companies Would Harm Regular Americans

May 18, 2012

The Obama administration proposed raising taxes on domestic oil and gas producers in its fiscal 2013 budget.  Such taxes would, if approved by Congress, harm the economic performance of the industry and encourage investment overseas.  Moreover, such new taxes would hurt American shareholders, the primary owners of these companies, says Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.

Looking first to the tax increases themselves, it can be seen that these fiscal efforts unfairly target the oil and gas industry, leaving similar industries untouched.

  • President Obama suggested raising $5 billion in 2013 and $41 billion over the next decade from tax increases on oil and gas, more than on any other industry.
  • In addition to specific taxes on oil companies, repeal of "last in, first out" accounting methods would cost the industry another $26 billion over 10 years.
  • Furthermore, a substantial share of international tax increases and Superfund taxes would affect the oil industry, raising another $21 billion, for a total of about $88 billion over 10 years.

In assessing the impacts of these policies, it is also crucial to look past the effects on the corporations to understand what lost profits will do to oil and gas company owners.  And while many Americans may think that these corporations are dominated by a small few mega-wealthy individuals, the truth is that their primary backers can be found in the nation's retirement funds.

  • Data show that the officers and directors of oil companies hold an insignificant fraction of shares of the largest five oil companies, ranging from 0.11 percent for Exxon Mobil to 1.4 percent for Occidental Petroleum, undermining the depiction of mega-wealthy individual owners.
  • Indeed, Occidental Petroleum is the only one of the firms where ownership by officers and firm directors exceed one percent of outstanding shares.
  • Private and public pensions, on the other hand, own 31 percent of all U.S. oil and natural gas companies.
  • Also, individual Americans own 3 percent of funds directly, and 28 percent through mutual funds.

Reducing the profitability of these companies will undermine their contributions to these pension and mutual funds, thereby harming regular Americans and robbing them of excellent investment returns provided by these companies over time.

Source: Diana Furchtgott-Roth, "Who Really Owns the Oil Companies?" Manhattan Institute, April 2012.

For text:

http://www.manhattan-institute.org/pdf/ir_11.pdf

 

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