Some Actual Facts About Oil Industry Taxes

One of our local TV stations made a provocative post on Facebook this morning, on the subject of the Congressional hearings about gasoline prices, and whether oil companies “should get these tax breaks as oil and gas prices continue to soar, even if it impacted business here in West Texas?”

The comments were predictably appalling in their lack of understanding of even the most fundamental economic realities, both concerning oil company earnings and taxes, and the pricing of crude oil and gasoline. Here’s a sample, completely unedited (you might want to have a barf bag handy):

Well. It’s hard to believe that our nation has an economic crisis, given the simplicity of the solutions these budding Nobel laureate geniuses have pointed out. How could we have been so stupid as to miss the fact that we could have just done away with OPEC and – voila! – gasoline would be cheap and life would be good. And I was particularly surprised to learn that the US has apparently secretly been a member of OPEC all these years. Why, it makes perfect sense now that I’ve been shown the light!

Enough of the sarcasm (not really, but let’s rise above it for the time being). How about let’s defy tradition and base our opinions on facts for a change? To wit:

• The profit margin in the oil and gas industry is 6-8%. Perspective: this was lower than all manufacturers as a whole, and much lower (by a factor of 2-3x) than pharmaceutical and computer manufacturers. [Source]
• The oil industry generates almost $100 million PER DAY in revenue for the US Federal Government [Source]
• Between 2004 and 2008 the industry incurred more than $300 billion in income taxes, more than half of which went to the US Federal Government [Source]
• Oil prices are NOT SET BY OIL COMPANIES. [No source required; it’s just fact, like the sun rising in the east]
• ExxonMobil is frequently used as the poster child for all the things wrong with the oil and gas industry. In the last three months of 2010, they earned a little more than 2 cents per gallon on gasoline, diesel and other finished products made and sold in the US. And gasoline sales made up only 3% of the companies net income. And as far as taxes go, over the past five years, ExxonMobil incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than it earned in the United States during the same period.  [Source]
• And, finally, in case there’s some lingering doubt, the US is not, has never been, and never will be (thanks to many factors, not the least of which is our own federal government) a member of OPEC. Sheesh.

The facts surrounding the “tax breaks” alluded to by the TV station are beyond the scope of this post, but it’s worth noting that many of them are not oil and gas industry-specific; they apply equally to all manufacturing industries.

If you get some kind of perverse pleasure from punishing oil and gas companies by raising their taxes, so be it. Just recognize that (a) it won’t result in lower gasoline prices, and (b) it will, in fact, result in lowered US production of oil and gas, and the logical supply-and-demand impact will be…oh, never mind. That economic concept is apparently too complicated for some people to grasp.

Update: I intended to include a link to George’s excellent post over at Sleepless In Midland wherein he breaks down the supposed “subsidies” that oil companies enjoy.