The Surprising Truth About Oil and Gas Tax Breaks

By Ryan Alexander US News and World Report

They might claim otherwise, but oil and gas companies get a really sweet deal from taxpayers.

At Taxpayers for Common Sense, we recently analyzed the federal income taxes paid over the last five years by some of the largest U.S.-based oil and gas companies. What we found surprised us.

We set out to document the federal tax rate of oil and gas industry leaders because we knew the claim made by the American Petroleum Institute – that the industry pays an income tax rate of 44.3 percent – is misleading. The claim is misleading because the institute uses it in the context of reforming the federal tax code, but the figure includes all foreign, state and local taxes, as well as federal. When we looked at the financial statements of 20 of the largest oil and gas companies, we found this group paid an average federal tax rate of 24 percent on its U.S. income.
This was not surprising. It is no secret the federal tax code is riddled with broad exceptions and deductions allowing many industries to pay much less than the standard 35 percent corporate rate. In fact, one of the goals of tax reform is to lower the overall corporate rate by removing the system of distortive tax preferences that require companies to change their behavior in order to qualify.

What was surprising, though, was the extent to which these companies were able to delay or defer the payment of the federal taxes they accrued. Most of the companies in our study deferred more than they actually paid. When the deferred taxes are subtracted from the amount these 20 companies owe, their average “current” tax rate drops to 11.7 percent. The independent oil and gas companies in the bottom half of our list, excluding the ones that recorded losses for the period, deferred almost all of the federal income taxes they accrued during the last five years, reporting an average current tax rate of just 3.7 percent.

While there are a number of reasons a company may defer tax payments, the companies in our study reported their deferral was almost entirely from “plant, property and equipment.” These companies have spent more in recent years on tangible property (e.g. constructing drilling rigs), and have been able to deduct more from their taxable income as a result, dramatically lowering their federal tax bills. It’s worth noting too, that while the industry champions its investments as job creating, the taxpayers are, at the end of the day, lowering the companies’ cost of capital to make those investments. Deferral of taxes functions a lot like interest free loans – companies that get to defer taxes simply choose to use that money for something other than paying that tax obligation, instead putting the obligation off into the future. And, in turn, that deferral increases the size and cost of the federal debt.
The industry and its supporters see this as a causal relationship between tax breaks and the oil industry’s decision of whether or not to invest in domestic oil production. Remove these favorable tax provisions, the argument goes, and these companies will move their business, and jobs, abroad. There are at least a couple of problems with this argument.

First, prices and technology drive production decisions. The single biggest factor effecting the decisions of oil companies is the price of oil, which is determined by the world market. Oil prices remaining above $100 per barrel creates the incentive to drill. Coupled with this is the affordability of technology that allows companies to extract oil and gas from previously unattainable sources, like shale. This is what is driving domestic oil and gas production in recent years, not century-old tax breaks.

Moreover, oil and gas companies don’t need government subsidies. Just the 20 companies in our study reported in excess of $175 billion in total deferred tax liabilities at the end of 2013. They do not pay any interest to the government on this amount, even if it takes 20 years to pay it. The oil and gas industry is one of the most profitable in the world – the five largest oil and gas companies reported more than $104 billion in profits last year – so it does not need special treatment in the tax code.
A common refrain is that U.S. corporate taxes are the highest in the world, which is bad for our economy. One of the biggest roadblocks to reducing our corporate tax rate is resistance from powerful industries, like the oil gas industry, which get a special deal better than other corporate taxpayers because of a list of tax benefits, many unique to their industry. The oil and gas industry maintained their special deal even through the 1986 reform of the tax code, the last time it was overhauled. Let’s hope when Congress gets to comprehensive reform this time these outdated, special breaks for the profitable oil and gas industry are left on the chopping block.

Just a few bad apples:

Officer of the Year Arrested for Domestic Violence

N. Carolina Police Officer Arrested for Impregnating 14-Year-Old Girl

Pentagon Officials Permitted Govt. Spending at Strip Clubs and Casinos: Report 

Altamonte Springs police officer arrested on domestic battery charge

LE officers are fully n completely above the law when it comes to domestic violence 29% got promotions

California police officer arrested on suspicion of rape

FBI Agent Arrested On UA Campus masturbating in woman's bathroom

Justice Dept. Half of Sexual Abuse Claims in American Prisons Involve Guards, Study Says

Pentagon: Hundreds of military kids sexually abused annually

Moss Point Officer Arrested On Meth Charge

After Dallas Shootings, Police Arrest People for Criticizing Cops on Facebook and Twitter

Man arrested for writing 'kill that pig' about police officer on Facebook

Florida police officer arrested after soliciting $40 prostitute while on-duty

DEA Targets Innocent Americans—Accessing Their Travel Data and Seizing Cash

Cops mistook Krispy Kreme doughnut glaze for meth

KKK in your local PD

Americas Criminal Justice System is Racist

NYPD: Racial profiling is a part of the system

Police take millions of dollars from motorist never charged with a crime

Lynchburg Police officer arrested for DUI, placed on paid administrative leave

Wife Beating Police Officer Apoligizes -To Get his Job Back: But Only Apologizes to fellow officers not...

Update: DOC: Prison guard accused of dealing heroin suspended

Update: N.Y.P.D. Commanders Are Arrested in Vast Corruption Case, Plead Not Guilty

How Police Policies Allow Domestic Violence Victims to be the Ones Arrested

Minnesota officer arrested for DWI goes on anti-police rant: ‘I f---ing hate the cops and I hate that I’m a cop!’

Calif Police Officer Arrested For Domestic Violence

Update: Police officer arrested for domestic violence pleads not guilty

Shreveport Police officer arrested

Sheriff arrested for allegedly having sex with prisoner

Police Officer Arrested By FBI For Smoking Crack On Duty

Off-duty LAPD cop arrested for alleged lewd conduct in O.C.

30 Cases of Extreme Police Brutality and Blatant Misconduct

Indianapolis officer arrested on domestic violence charges

Police Officer Accused of Domestic Violence Shoots at Investigating Officer

Cops Arrested for Domestic Violence

Police officers three times more likely to commit domestic violence

(Warning to all citizens) 8 Things the Police can KILL YOU for

Citizens Rise Against Police Brutality Nationwide

46,000 American citizens are in prison for crimes they did not commit

Without Due Process: From Mass Incarceration to Assassination

Popular posts from this blog

Medical Marijuana Could Cost Big Pharma

Operation Bayonet: Inside the Sting That Hijacked an Entire Dark Web Drug Market

2Pac - Can't C Me (HD Video)