January 30, 2006
For immediate release
Media contact: William Ahern (202) 464-5101
High corporate income tax payments by oil companies continue to undermine the case for a windfall profits tax, according to a new Tax Foundation "Fiscal Fact."
“Many who propose taxing energy companies more heavily than other firms, with a ‘windfall’ tax, believe that these firms somehow escape normal taxpaying requirements, leaving other industries to carry a heavier load,” said Scott Hodge, president of the Tax Foundation and co-author of the new study, “but fourth-quarter financial statements show this isn’t true.”
Earnings reports have just been issued by many large firms covering the fourth quarter and a summary of 2005. Today, Exxon Mobil’s statement showed record-setting profits and tax payments up nearly 50 percent over 2004. The firm set aside $23.3 billion for income taxes from its 2005 earnings of $59.4 billion, or $3.80 tax per share. That’s an effective tax rate of 39.2 percent on its worldwide operations.
Similarly, ConocoPhillips said last Wednesday that it expected to pay income taxes of $9.9 billion, or $7.11 per share, from its before-tax profit of $23.5 billion during 2005, yielding an effective tax rate of 42.1 percent. On Friday, Chevron reported setting aside $11.1 billion from its before-tax earnings of $25.2 billion, or $5.18 per share. That’s an effective tax rate exceeding 44 percent.
Calls for a windfall profits tax have often been accompanied by claims that the U.S. is more forgiving in its taxation of corporations than other nations. “Just the opposite is true,” said Foundation economist and co-author Jonathan Williams. “The combined federal-state tax rate on corporate profits is 39.3 percent in the U.S.. That’s the highest of all nations in the OECD.” (See recent study at www.taxfoundation.org/news/show/1175.html.)
Unlike the windfall profits tax enacted in 1980, the extra taxes passed by the Senate and currently in conference don’t take the form of a straightforward rate hike. Instead, technical tax provisions would be altered to extract extra revenue, either by disallowing foreign tax credits that other firms can use or by disallowing the “last in, first out” (LIFO) accounting method that can lower corporate tax payments.
The study also enumerates some of the taxes that these firms remit in addition to corporate income taxes: franchise, payroll, property, severance and excise taxes.
The Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization.
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