Akin to health care, U.S. tax policy is one of those perennial, politically divisive issues that everyone seems to agree needs reform, but change is never forthcoming. President Barack Obama’s efforts to get U.S. corporations to repatriate the huge sums of money they hold in offshore banks and tax havens by invoking economic patriotism has been met by the by-now traditional blowback from self-professed “free market” neoconservatives and “pro-business” interests.
Avoiding U.S. taxes, American multinationals have stashed some $1.95 trillion in offshore banks, a year-over-year increase of 11.8 percent from 2013, according to a Bloomberg News study. Despite claims to the contrary, data from the U.S. Federal Reserve show that the effective U.S. corporate tax rate has been declining almost continuously since the early 1950s. Furthermore, while the share of federal revenue paid in by individual U.S. citizens in taxes is now approaching 50 percent, that for U.S. corporations has dropped to around 12 percent.
U.S. corporate tax policy, moreover, is at odds with broadly beneficial goals being pursued by the Obama administration, state governments, businesses, communities and individuals across the U.S., such as the drive to reduce greenhouse gas emissions and foster the transition to cleaner, sustainable energy resources. Besides continuing to be heavily subsidized, the U.S. oil and gas industry reaps huge gains from tax advantages unavailable to other types of businesses, according to a study from Taxpayers for Common Sense (TCS).
Gaming the U.S. tax code
Internationally, overall U.S. taxes in 2008 amounted to 27.3 percent of GDP, at the bottom-end of the scale according to a comparative study of tax rates across 33 OECD (Organization for Economic Cooperation and Development) countries. The OECD average was 36.2 percent.
Zooming in on large, U.S.-based oil and gas companies, they “paid far less in federal income taxes than the statutory rate of 35 percent” from 2009-2013, according to TCS’s “Effective Tax Rates of Oil and Gas Companies: Cashing in on Special Treatment.” Furthermore, as the TCS report authors explain, “Thanks to a variety of special tax provisions, these companies were also able to defer payment of a significant portion of the federal taxes they accrued during this period.”
Twenty of the largest oil and gas companies reported a total $133.3 billion in U.S. pre-tax income over the five-year study period. The total of federal income taxes they paid: $32.1 billion, an effective federal tax rate of 24 percent – 11 percent below the statutory rate. In addition, special provisions in the U.S. tax code allowed them to defer payment of more than half this tax bill.
Actually, these oil and gas companies paid only $15.6 billion in federal income taxes over the past five years. That translates into a current tax rate – the amount of U.S. federal income tax paid regularly every tax period – of 11.7 percent, the report authors highlight.
Paying more taxes abroad than at home
Four of the biggest U.S.-based oil and gas companies – ExxonMobil, ConocoPhillips, Occidental and Chevron – accounted for 84 percent of the group’s total income and 85 percent of its tax liability. Collectively, the four’s effective rate from 2009-2013 came in at 13.3 percent.
Smaller U.S.-based oil and gas companies paid in an even smaller share of their tax liability on a current basis, TCS found. Excluding the big four, the remainder of the companies studied deferred over 87 percent of their tax liability. They had an effective U.S. income tax rate of 28.9 percent, but a current tax rate of just 3.7 percent.
Just how egregious this can get is illustrated by the following: “Many of the companies deferred more of their federal income taxes than they actually paid during the last five years.”
Occidental Petroleum’s tax bill from 2009-2013 totaled $5.4 billion, TCS’ researchers found. It deferred payment of $4.5 billion, or 83 percent. Of a total federal tax bill for the period of $1.2 billion, Continental Resources deferred $1.1 billion.
Over the five-year period, the amount of taxes Devon Energy deferred more than doubled from $1.9 billion to $4.8 billion. Apache’s rose from $2.6 billion to $7.9 billion.
Amazingly, the total amount of net deferred tax liability for some of these U.S.-based oil and gas companies has grown to represent a significant share of their net worth. ConocoPhillip’s total deferred tax liability amounted to $22 billion as of year-end 2013, about 42 percent of its shareholder equity. Denbury Resources’ deferred tax liability grew to represent about half its reported shareholder equity of $5.3 billion.
What’s more, these companies paid “dramatically less” in U.S. income taxes than they paid to foreign governments over the same period, which totaled some 46.2 percent of their total foreign pre-tax income, TCS highlights. Generally speaking, these foreign governments don’t permit taxes to be deferred, so the companies paid out 99 percent of some $254.2 billion in accrued tax liabilities to foreign governments.
*Image credits: 1), 3) Taxpayers for Common Sense; 2) U.S. Federal Reserve via Wikipedia