President Obama has been talking an awful lot about fairness lately.
This week, he said that he was in a better position than rival Mitt Romney to make sure that “everybody in the country has a fair shot” and that “everybody’s paying their fair share.” The president singled out the oil industry for particular criticism, claiming that the sector gets too many federal tax breaks.
It’s true — oil companies don’t pay their fair share. They pay more than that.
Absent major changes in the way this country taxes corporations, there may not be any more companies — oil or otherwise — for the federal government to tax.
The top corporate income tax rate in the United States is 35 percent. Yet America’s three largest oil companies — ExxonMobil, Chevron, and ConocoPhillips — pay taxes in excess of 40 percent. ExxonMobil pays 45 percent, shelling out over $12 billion in federal taxes in 2011.
Fair, low corporate tax rates generate economic growth, produce jobs, and make goods and services cheaper for consumers.
Apparently, the United States is the only country in the world that hasn’t gotten the memo. Over the past decade, the global average corporate tax rate dropped from 32 percent to 25 percent, while the U.S. rate remained exactly the same. Consequently, America now has the highest corporate tax rate in the industrialized world.
Our stiflingly high rate is bad enough. But the federal government also taxes U.S.-based companies on money they make in foreign countries in addition to income earned domestically. We’re one of the only countries in the world to do so.
Unsurprisingly, many business leaders are considering leaving America for countries with lower tax rates on domestic earnings and little to no tax liabilities on income earned abroad. Some already have.
The U.S. corporate tax structure doesn’t just kill American jobs. It also plays favorites. In recent years, federal lawmakers have showered preferred industries and companies with tax breaks and other preferential treatment.
As a result, seemingly every corporation faces a different tax rate, depending on how much lawmakers like them, how good their lobbyists are, and how well they’re able to exploit tax shelters.
For instance, America’s 20 most profitable companies paid an average of 25.4 percent in taxes in 2010. In the same year, General Electric paid just 7.4 percent. And last year, Apple paid 9.8 percent. Almost every company in the United States pays a lower tax rate than oil companies.
And what do politicians do with the extra lucre they extract from oil companies? They subsidize the industry’s competitors.
In 2011, the federal government gave away $16 billion in taxpayer dollars to subsidize non-traditional energy schemes. Included in the handouts were a $6 billion giveaway for ethanol companies and millions more to bankroll solar-energy companies like the infamous — and now-bankrupt — solar-panel maker Solyndra.
It’s the stated goal of many of these alternative energy firms to put oil companies out of business. That’s all well and good. But they shouldn’t get a multibillion-dollar assist from taxpayers.
Only the federal government could see the “fairness” in taking a hefty slice of the oil industry’s revenues as taxes and using it to fuel the sector’s downfall.
Oil companies may make for convenient — and politically popular — targets. But the fact is that they pay more than their fair share in taxes. Lawmakers should direct their energies instead toward fixing America’s expensive and uneven corporate tax system — before it drives any more companies and jobs out of the country.
Drew Johnson is a senior fellow at the Taxpayers Protection Alliance (TPA), a nonpartisan, nonprofit educational organization dedicated to a smaller, more responsible government.