Romney's tax plan doesn't encourage growth, fairness

ADVERTISEMENT
Hufbauer does not dispute the central finding of our report, which is that Romney’s plan would cut the large oil companies’ tax bills by reducing the corporate rate, failing to identify any ways to broaden the corporate tax base, and protecting existing tax breaks claimed by the oil companies. (Romney’s campaign and his chief energy advisor have both specifically defended Big Oil’s tax breaks.)

But Hufbauer’s specific arguments warrant a response:
 
First, Hufbauer argues that Big Oil’s tax breaks are not “specific to the energy industry.” The industry does, in fact, enjoy special tax breaks.

For example, Hufbauer ignores the deduction for intangible drilling expenses, which is available only to oil and gas companies. That special tax break has benefitted the industry for nearly a century and will provide another $2 billion in tax subsidies to the five large oil companies over the next decade, according to the Congressional Joint Committee on Taxation.
 
Another example of a special tax loophole used mainly by oil companies is the “dual capacity taxpayer” rules for claiming foreign tax credits. In general, corporations are supposed to claim foreign tax credits only for income taxes paid to foreign governments, to avoid double taxation of profits. But because of weaknesses in the current rules, oil companies can sometimes claim credits for payments to other countries that are actually royalties. In other words, companies are essentially paying royalties to obtain rights to oil or gas resources, and then crediting those payments as income taxes. President Obama has proposed simply to limit the oil companies’ foreign tax credit to the amount that companies in other industries operating in the same foreign country would receive, so that U.S. taxpayers are no longer subsidizing foreign oil extraction.
 
Hufbauer also points to the section 199 deduction, which he correctly notes “is designed to encourage domestic manufacturing.” But Hufbauer then confuses section 199 with a different tax provision -- accelerated depreciation under section 168 – which indeed applies generally across all industries.  On section 199, the question Hufbauer fails to answer is, why should large oil companies be able to claim a tax break that was intended specifically to keep manufacturing onshore?
 
Next, Hufbauer uses misleading figures to suggest that oil companies are paying more in U.S. taxes than they actually are. He writes: “ExxonMobil paid more in taxes, $59 billion, than it made in earnings, $41 billion.” But this figure, often cited by Exxon Mobil lobbyists, has been widely discredited because it includes gasoline taxes collected by Exxon Mobil but paid by its customers. Another tax measure cited by Hufbauer – the supposed 41 percent rate paid by the oil industry – is inapt because it includes payments to foreign governments.
 
The fact is that Exxon Mobil paid an effective U.S. federal income tax rate of just 14.2 percent over 2008-2010, according to a review of financial statements by Citizens for Tax Justice. Chevron paid 25 percent and ConocoPhillips paid 27 percent. Overall, companies in the oil, gas, and pipelines sector paid 15.7 percent over that period. All of these rates are well below the U.S.’s 35 percent corporate rate.
 
Finally, Hufbauer suggests that the existing and proposed additional tax breaks are essential for these big five oil companies. These companies made a combined record profit of $137 billion in 2011, with first half 2012 profits at $62 billion due to higher gasoline prices paid by families and businesses. Yet during the past 6 years these five oil companies produced 6 percent less oil. Most of the companies are using a large portion of their profits to buy back their own stock. An analysis by the House Natural Resources Committee Democrats found that these same companies shed thousands of jobs over the past six years.
 
We agree with Hufbauer that “tax policy should strive to promote economic growth while ensuring tax fairness.”  But Romney’s proposal encourages neither growth nor fairness. These five oil companies are all in the top 10 on the Global Fortune 500 list. Romney’s plan to provide them with billions more in tax cuts on top of the $2.4 billion in existing tax breaks they enjoy makes little fiscal or economic sense. And it is certainly not fair to do so as part of an overall economic plan that would force cuts to critical programs including Social Security, Medicare, and Medicaid.
 
Weiss is a senior fellow and director of climate strategy at the Center for American Progress Action Fund; Hanlon is director of fiscal policy at the Center for American Progress Action Fund.


More in Economy & Budget

Marketplace Fairness Act is not fair to the marketplace

Read more »