Unwilling to reign in Washington’s overspending problem, Democrats and their allies on the Left are stuck championing tax increases. Raising the corporate income tax rate—already the highest in the world—or increasing the personal income rate is untenable, leaving Democrats no choice except to try and repeal tax credits and deductions.
With oil and natural gas companies releasing their first quarter earnings this week, look for revenue hungry Democrats and to set their sights on this industry. First out of the gate is the League of Conservation Voters (LCV) which began asking Members of Congress to pledge to raise taxes on American oil and natural gas companies by eliminating a handful of pro-growth deductions. The LCV pledge reads:
“With five biggest public oil companies enjoying $60 billion in profits and Americans struggling with high gas prices, we should no longer force Americans to subsidize oil companies. I hereby pledge to end taxpayer subsidies and handouts for oil companies.”
Let’s cut through the hyperbole. Unlike renewable sources of energy which received $60 billion in taxpayer dollars since 2008, the American government doesn’t give oil and natural gas companies a cent to produce oil. The LCV’s characterization of tax credits and deductions as subsidies is intentionally misleading. A subsidy is when the government takes money from you and gives it to someone else, like a solar company. Allowing a company to keep more of its earned money by employing a tax credit is anything but a subsidy.
You would think from the LCV’s pledge that oil and natural gas companies pay virtually no taxes and are gaming the system for profit. This could not be farther from the truth: paying nearly $100 million a day in income taxes—and $300 billion in total income taxes between 2004-2008—the oil and natural gas industry’s effective income tax rate is 48 percent, compared to 28 percent for other S&P Industrial companies. And that’s just income taxes, those numbers don’t even include an additional $60 billion in non-income taxes or $350 million in excise taxes paid on petroleum products.
Furthermore, it is worth asking who profits when oil companies prosper. Apart from the 9.2 million people the industry employs, 27 percent of oil companies are owned by pension funds, 23 percent by individual investors, 30 percent by mutual funds, and 14 percent by IRAs. Only 1.5 percent of oil stocks are held by corporate management. This means that if you or your employer has been saving for retirement, well, you are likely part of Big Oil. Gasp!
And then there’s the matter of gasoline prices. As a commodity, oil prices are subject to speculation from investors who access global supply and demand. When you spend a dollar on gasoline, 68 cents from that dollar go towards purchasing the crude oil and 18 cents is used for refining and retailing. The remaining 14 cents is forked over to the government in excise taxes.
If Democrats really wanted to alleviate Americans’ pain at the pump, they could reduce the gasoline excise tax. Revealing their true intention, more revenue, Democrats are arguing for higher taxes on oil and natural gas companies—it is hard to imagine how further taxing oil and natural gas companies would bring down the cost of gasoline.
The truth is Democrats would rather demonize oil and natural gas companies than make necessary spending cuts. Leadership is making tough decisions about which programs to cut, bolster, or eliminate, not which companies to tax.