Oil company executives from the five largest oil companies appeared before the Senate Finance Committee to: a) get grilled about the generous “taxpayer subsidies” they allegedly receive, b) justify their recent “windfall profits” and c) explain their role in higher oil and gas prices. Leading up to today’s hearings were the first quarter reports on profits for the oil companies, with ExxonMobil receiving special attention for its $10.65 billion in profits during the first three months of 2011. Here are some facts about earnings for the oil industry and ExxonMobil to provide some balance to this year’s “open season” on oil companies.
1. In the most recent quarter, the “Major Integrated Oil and Gas” industry earned an average profit of only 6.2 cents on every dollar of revenue. In comparison to the several hundred other industries in the United States, the profit margin of the oil industry ranks No. 114 out of 215 industries, placing Big Oil right in the middle of profitability for private industries. If Obama and Congress want to target “excessive” corporate profits, there are hundreds of other industries that are much more profitable than the oil and gas industry. For example, the surge in commodity prices has resulted in “windfall profit” margins of 31 percent for the silver industry, 23 percent for the copper industry, and 19.8 percent for the gold industry.
2. Compared to the average manufacturing company in the United States, oil companies already face a much higher income tax burden as a share of before-tax earnings. In 2010, the total income taxes paid by oil and gas companies averaged 41.1 percent of their pre-tax earnings, compared to only 26.5 percent for all of the other firms in the S&P Industrials.
Turning specifically to ExxonMobil, and noting that its huge profits typically receive much more attention than the large sums it spends on taxes and capital equipment:
3. In the first quarter, ExxonMobil earned $18.9 billion and paid $8 billion in income taxes to various governments, which is about $22 million in income taxes each day, and almost $1 million each hour. Exxon Mobil paid almost half of its first quarter earnings in income taxes, for a 42.3 percent effective tax rate. And yet, according to President Obama and some members of Congress, oil companies “aren’t paying their fair share of taxes,” and should be taxed more.
4. Dwarfing ExxonMobil’s first quarter profits of $10.65 billion, are the total taxes paid or collected around the world by the company from January to March, which totaled $26.2 billion and included: a) $8 billion in income taxes, b) $7.9 billion in sales-based taxes, and c) $10.3 billion for all other taxes including property taxes, etc.
5. ExxonMobil spent $7.8 billion in the first quarter on capital equipment and exploration, or more than $21 million per day. Over the next five years, the oil giant will invest $175 billion in capital equipment and exploration—an amount equivalent to the entire gross product of Alabama in 2010—and will enable the company to continue to supply the U.S. economy with energy resources.
Bottom Line: What often gets overlooked by politicians in Washington is that real people, not corporations like ExxonMobil, ultimately pay all taxes. Higher taxes on oil companies will get passed on to actual people, and can only mean higher prices for consumers at the pump, lower wages and fewer jobs for employees, and/or lower dividends for shareholders. There might be a political payoff to raising taxes on oil companies, but it will be an economic disaster that will also make us more dependent on foreign oil.