There is not another industry in the United States that has been more vilified in the past few years than the Oil Industry. To many Americans, these companies represent corporate greed and the stranglehold that “special interests” have on politics in Washington. Driven first by the populist message of John Edwards’ campaign, the Oil Industry, ExxonMobil specifically, has proven an easy and popular target for Democratic presidential hopefuls. Barack Obama often announces at large campaign stops:

I know that it won’t be easy to change our energy policy. ExxonMobil made $11 billion last quarter. They don’t want to give those profits up easily.

Hillary Clinton has been no more gentle, saying:

Now, ExxonMobil had, you know, the highest profits in corporate history. Yet when CEO Lee Raymond was asked about how much his company had invested in alternative energy over the last decade, his reply was, and I quote, “a negligible amount.” Well, that’s unexcusable. You know, the oil industry is making $300 million a day, not because they planned on it, not because of great managerial expertise, but because of escalating world demand and therefore increasing prices for this commodity that they didn’t create in the first place. I think it’s time that we made sure they put a fair share of their profits toward a sound energy future.

There is no shortage of criticism against the Oil Industry. What we don’t often hear, is a response. How does the Oil Industry justify such high profits? Given these profits, why are companies like ExxonMobil still receiving government subsidies? One of our users, who works for an oil company, forwarded me an email sent to company employees in response to these exact questions. As this user explains:

The material below is from an Oil Industry perspective (point of view) but .. I think it is a good example of the fact that there is a “rest of the story” / “other side of the issue” to most of the significant challenges facing the country. We all need to be prepared to listen to both sides of the story and understand the background behind the “30 second sound bites” if we want to avoid driving the bus from one ditch into the next one as we tackle difficult problems. The material below summarizes the “other side of the story” on the active debate on special tax subsidies for the Oil Industry.

I post this message not to defend the Oil Industry, but simply to offer another perspective. Our users have posted a whole slew of ideas to improve America’s environmental and energy policy, and it is important that these ideas are based on truth and sound science… not junk science or rhetoric, regardless of what side it is coming from. (Note: For the sake of privacy I’ve removed the name of this user’s employer. It doesn’t change the context or content of the message.)

“Fast Facts” on Oil Industry Taxes and Congress’ Tax-Hike Proposal

In the past several months, a number of media commentators and political leaders have been accusing the oil and gas industry of profiting from “special” tax subsidies and incentives, and asserting that the industry is somehow paying less than its ‘fair share’ of taxes. Few things could be further from the truth.

As you discuss with your family and friends proposals in the Congress to increase the industry’s tax burden even further, you may want to be armed with some “fast facts” that take on some of these false claims. In response to the points below that were circulated recently by some Members of Congress, below is more complete information that rebuts some of the erroneous claims surrounding the industry’s taxes and explains the short-sighted, harmful impacts of increasing industry’s taxes at this time.

Claim 1: “This week, the House will vote to reinvest taxpayer subsidies to oil companies earning record profits into clean renewable energy—creating jobs and making America less dependent on foreign oil.”
The Facts: These so-called “subsidies” are tax provisions applicable to all US manufacturers and producers. Specifically, the 2004 “American Jobs Creation Act” was enacted to lower the marginal tax rates for U.S. manufacturers and producers, in order to strengthen the American economy and preserve jobs here in the United States. Yet somehow they are described as “subsidies” only for oil companies — not for other “manufacturers,” ranging from farmers, ranchers, and coal and mineral producers, to coffee grinders, movie studios and video game producers.The pending House energy tax bill would repeal the 2004 legislation in full for only 5 oil and natural gas companies, singling them out for “punishment” and ignoring the fact that on the “record” profits they have made, they have also paid record taxes. In a study published recently in Tax Notes, the three highest effective tax rates for 2004-2006 of some 80 companies surveyed were ConocoPhillips, ExxonMobil, and Chevron. These tax rates were some 13 percentage points above the 30% effective tax rate average for all 80 companies.

Claim 2: “The bill comes shortly after the big five oil companies reported their latest record profits in 2007 and as oil prices hit record highs. This morning, oil prices are near $100 a barrel. Several weeks ago, ExxonMobil reported earning $40.6 billion in 2007 - the largest corporate profit in American history - equal to $132 for every U.S. resident.”
The Facts: ExxonMobil also incurred, in 2007, income taxes of $32.4 billion (including ExxonMobil’s share of equity company income taxes), also a record, which resulted in a 44% effective income tax rate. And all taxes incurred by ExxonMobil in 2007, including income, sales-based, and other taxes, were a staggering record of $106 billion — equal to roughly $340 for every U.S. resident!

Claim 3: “High energy prices continue to squeeze American families. Since President Bush took office, gas prices are up 109%, and home heating prices are up 222%. Over the same time period, oil company profits are up 313%.”
The Facts: But from just 2002 to 2005, oil company current income taxes were up over 460%!

Claim 4: “It is a waste of taxpayer dollars for oil companies to receive subsidies while making record profits.”
The Facts: Oil companies are simply being taxed in the same way as all other US manufacturers and producers, and are paying record taxes on their earnings. Increasing tax rates further just on a handful of US companies is not “taking subsidies” away, but rather is simply imposing a windfall profits tax on a few companies, which will only serve to further increase our dependence on foreign energy sources, not reduce it.

Claim 5: “Congress… [is] working to lower energy costs, improve national security by making us more energy independent, end taxpayer-financed subsidies to big oil companies earning record profits, and combat global warming.”
The Facts: Increasing taxes on US producers will do nothing to lower energy costs; if anything it will increase them. The Congressional Research Service, Congress’ own research arm, has stated these proposals will reduce investments in domestic oil and gas, and will consequently increase imports. That would not make us more “energy independent.”

Claim 6: “Renewable energy jobs and investment depend on a sign from Washington that there will be support for the industry to grow.”
The Facts: Just three years ago, when it enacted the American Jobs Creation Act of 2004, Washington sent a sign that it wanted to promote employment in the US oil and gas industry, and all other US manufacturing and production sectors –not by picking “winners and losers,” but by treating all equally. Repealing this provision for just one segment of US manufacturers and producers — the oil and natural gas industry — so soon after it was put in place, can hardly be a good sign of Washington’s long term commitment to anything it “says” it seeks to promote. What investors need is a stable tax environment that they can count on. In addition, recent federal energy legislation has already imposed massive market mandates — and provided other subsidies — for renewable energy sources. The best “signs” for capital investment in a free market should, in fact, come from the market, not Washington.

Claim 7: “Next week, the U.S. State Department co-hosts [a renewable energy conference] in Washington, with government ministers from 125 nations, billed as the largest renewable energy conference in history.
The President goes into the conference opposing the House’s renewable energy legislation because he wants to protect oil company profits.”
The Facts: The President does not necessarily oppose renewable energy legislation, and last year enacted into law a dramatic increase in a federal mandate for renewable fuels — reaching 36 billion gallons by 2022. However, he has opposed increasing taxes on companies already paying record taxes, thereby discouraging domestic oil and gas investment and reducing the competitiveness of US based companies competing for energy resources in global markets.

So what do you think? Do they have a case?