Record Profits Mean Record Taxes (Go Big Oil)

Record Profits Mean Record Taxes

By INVESTOR’S BUSINESS DAILY |

Taxation: Every time oil companies report strong earnings they seem to tap into a gusher of resentment on the left. One of these days the critics might look at what these businesses are contributing besides vital energy.

When Exxon Mobil recently released its 2007 results, Democratic Rep. Ed Markey complained that the “oil companies are turning the American consumer upside down at the pump, shaking out every last cent.”

A year ago he called the company’s record 2006 profit “outlandish.” Fellow Democrat Rep. Maurice Hinchey of New York called last year’s profit “obscene” and said “the way that Exxon Mobil has crossed the moral threshold is completely unacceptable.”

Then there’s Sen. Hillary Clinton, the presidential wannabe. A year ago, speaking before an audience of Democrats, she said “I want to take” the profits from oil companies.

The demagoguery isn’t limited to populist lawmakers.

The so-called Foundation for Taxpayer and Consumer Rights claims that Exxon’s 2007 profit is “unjustifiable.” Then just a week ago, San Francisco Chronicle columnist Mark Morford called Exxon’s profits “appalling” and the world’s biggest oil companies “the most dominant, ruthless corporations in the world.”

How do people with such worldviews get jobs at respected media outlets? How do they get elected? Do they not know that oil companies not only stoke the prosperity that provides them with their cushy lifestyles, but also make huge “contributions” to their favorite charity — the U.S. government — by paying record taxes?

Consider the magnitude of the contributions from Exxon alone.

On those “outlandish” 2006 profits, the company paid federal income taxes of $27.9 billion, leaving it with $39.5 billion in after-tax income. That $27.9 billion was more than was collected from half of individual taxpayers in 2004.

In that year, 65 million returns — which represent far more than 65 million taxpayers because of joint returns — paid $27.4 billion in federal income taxes. And those taxes were paid on adjusted gross income of $922 billion, according to IRS data, yielding an average tax rate of 2.97%.

This year, according to Mark Perry, the economist who made this striking observation on the Seeking Alpha Web site, Exxon will pay $30 billion in taxes, at a 42% rate, leaving $40.6 billion in profit.

That profit, so loathed by the left, actually plays an important role. No, it’s not used to light the fat cigars Exxon Mobil executives smoke to celebrate the successful squeezing of consumers.

Rather, the money is plowed back into research, development, exploration and drilling to keep the oil flowing, and distributed to stockholders who have risked their capital to build an enterprise that provides an essential good — the lifeblood of our economy.

Far from imposing a hardship on the economy, Exxon Mobil’s profits increase the wealth of those same shareholders, many of whom are everyday Americans feeling the bite of high gasoline prices.

And it’s not just Exxon Mobil that’s paying the freight. From 1977 to 2004, according to Tax Foundation data, U.S. oil companies cleared $630 billion after taxes while paying $518 billion in federal and state corporate taxes at an average rate of 45%.

Over the same period, an additional $1.34 trillion in excise fuel taxes was collected from consumers by the oil companies and turned over to various governments.

Beyond the rabble-rousing rhetoric of politicians, special interests and the shallow-thinking commentariat is an enlightening world of data.

What it tells us in this case is that not only can government not survive without the revenues it extracts from the demonized oil industry, but that the bottom half of taxpayers can hardly live up to their label.