Special Report No. 183
• Data from the Energy Information Administration show that governments in the U.S. and abroad are hugely dependent upon the direct and indirect taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es paid by the largest consolidated oil companies, and that between 1981 and 2008 these tax payments exceeded corporate profits by 40 percent.
• Between 1981 and 2008, the oil industry paid more than $388 billion to the federal and state governments in corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es, but they paid almost twice that amount, $683 billion, to foreign governments.
• Profits and income tax payments mirror the price of oil. In 1998 when the price was low, the industry paid just $733 million in federal and state income taxes. In 2006, with the real price of oil averaging over $63 per barrel, the industry paid a record $37 billion in corporate income taxes.
• Excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. collections have grown steadily. Between 1981 and 2008, $1.1 trillion was collected in excise and sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es on petroleum products. In 1999 governments collected $59 billion, more than twice the industry’s net profits that year.
• In severance, property and so-called windfall profit taxes, the industry paid more than $472 billion between 1981 and 2008.
The tragic impact of the British Petroleum oil spill on the five U.S. states that border the Gulf of Mexico has prompted calls for higher taxes on U.S.-based oil and gas companies even though the industry’s tax remittances already exceed its corporate profits.
Some legislators would prefer an economy-wide tax on fossil fuel energy, either a carbon taxA carbon tax is levied on the carbon content of fossil fuels. The term can also refer to taxing other types of greenhouse gas emissions, such as methane. A carbon tax puts a price on those emissions to encourage consumers, businesses, and governments to produce less of them. or cap-and-trade system. Others prefer a targeted approach that aims to repeal any tax provision that benefits the oil and gas industry. Champions of this approach even include on their hit lists tax provisions that benefit many other industries, in which case they propose withdrawing the benefit just for the oil and gas industry.
A common theme to both approaches is a bald assertion that the oil and gas industry pays little in tax. Despite the hyperbolic rhetoric from some lawmakers and interest groups, the facts do not support a claim that the oil and gas industry in America is under-taxed. Hard data from the Energy Information Administration show that governments in the U.S. (and even those abroad) are hugely dependent upon the direct and indirect taxAn indirect tax is imposed on one person or group, like manufacturers, then shifted to a different payer, usually the consumer. Unlike direct taxes, indirect taxes are levied on goods and services, not individual payers, and collected by the retailer or manufacturer. Sales and Value-Added Taxes (VATs) are two examples of indirect taxes. es paid by the largest consolidated oil companies.
Indeed, since 1981, when the failed windfall profits tax was first enacted, federal, state, and local governments in the U.S. have collected more in taxes from the oil industry than the industry has earned in actual profits for its shareholders. For example, after adjusting for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , the combined net earnings (net of taxes and expenses) for the largest petroleum companies between 1981 and 2008 totaled $1.4 trillion. By contrast, the total amount of taxes collected by U.S. governments from the oil companies topped $1.95 trillion, roughly 40 percent more than the industry’s combined profits. Tax collections exceeded company profits in 23 of the 27 years surveyed.Share