Taxes

At a time when the federal government is running record deficits, some politicians find oil and natural gas companies an easy target for tax hikes. Using misleading rhetoric, these politicians support proposals impose higher taxes on the industry by repealing deductions available to other companies. This unequal tax treatment will have the side effect of hurting U.S. job creation and increasing oil imports.

Oil and natural gas companies do not receive any special tax breaks.

They are only eligible for the same types of tax deductions as other businesses. They actually have a much higher effective tax rate than most companies.

For example, in 2011, income tax expenses for oil and gas companies were 40.6 percent of pre-tax net income, while the rate of other S&P industrial companies was just 25.1 percent. The energy industry pays the federal government $86 million a day in income taxes and production fees. Between 2012 and 2035, ongoing investments by the oil and natural gas industry will produce an additional $2.5 trillion in tax revenue to federal and state governments.

Oil and natural gas companies do not have a large profit margin.

Their percentage of net income is far below that of many other industries. At 6.7 percent, they are in the mid-range of profitable industries, but that is far below pharmaceutical companies, chemical companies, and beverage and tobacco companies. Energy companies may have large total profits, but that is because they are large companies. When you look at their true profit margins, it’s easy to see how tax hikes would threaten energy production and job creation.

The proposed tax hikes on American oil and natural gas companies would not result in new federal revenue.

discouraging U.S. energy production and encouraging more oil imports, increased taxes would actually decrease money flowing into the federal treasury. A report by the firm Woods McKenzie found that changing these tax provisions would actually decrease federal revenue by $128 billion by 2025. But adopting pro-energy policies will generate additional tax dollars.

In tough economic times, it’s standard operating procedure for politicians to try point the finger at business.But what we have seen when it comes to the oil industry is a blatant attempt to confuse the public and paint an important sector of the American economy as a villain.