Filling the Federal Coffers
A week before the election, the news was abuzz over ExxonMobil’s record profits—with some even calling the number obscene.
I am neither friend nor foe of ExxonMobil. CARE hasn’t received a penny from them, and, as far as I know, my personal retirement account contains no ExxonMobil stock—though it should. (More than 70% of the shares of large oil companies are owned by mutual funds, IRAs, pensions, and other such institutional investors. Solid earnings reports by the oil industry translate into more money for retirement.)
As one of the largest companies in the world, the total dollars being dealt with are astronomical. Their profits seem outrageous.
There are several different ways to view the ExxonMobil numbers. You can look at the profit margins, which are considerably less than those in other industries, including banking, pharmaceutical drugs, and technology. Conversely, you could also look at return on equity, which is higher than most.
However, this is not about defending ExxonMobil. It is about what the energy sectors do for America . ExxonMobil’s record numbers are merely a vehicle to bring this information to light in a time when virtually all energy production is threatened and coal-fired power plants, the most prevalent and cost-efficient form of electricity, are projected to be bankrupt due to dire energy proposals.
Everyone acknowledges that America has escalating debts and credit shortages. Any small-business owner faced with similar circumstances would stop and evaluate his income streams. Once the key areas were identified, efforts would take place to encourage those cash cows.
With our troubled economy in mind, where do the Federal coffers get funds?
Let’s go back to ExxonMobil. In addition to helping nearly every retirement account, they are a huge help to America ’s financial accounts—typically paying more in US taxes than they earn. Sure they had $14 billion in profits, but they paid more than twice that in taxes: $32 billion—and these numbers are just from one quarter! The taxes paid through the third quarter are $94 billion, and this figure doesn’t even include bonus bids or royalty payments to the taxpayer.
ExxonMobil may not be the largest single source of income to the Federal treasury, but their contribution is worthy of courting. ExxonMobil’s Chairman Rex Tillerson deserves, at the very least, a note of thanks for his contribution to America ’s financial standing.
Instead of kudos, ExxonMobil is being vilified. President-elect Obama was threatening them with windfall-profits taxes. Audiences at his campaign rallies booed at the mention of ExxonMobil and cheered at the idea of a windfall-profits tax.
With only 15% of its oil and gas production coming from American soil, looking out for their own interest, ExxonMobil should just pack up and leave; go somewhere more friendly, as Anheuser-Busch has done. The recent merger of Anheuser-Busch and InBev helps stockholders by keeping more of the money and paying less in taxes. But such actions hurt the Federal Treasury—and American jobs.
In the US , companies pay taxes on worldwide income. So, if a US company purchases a German one, it must pay US income tax on income earned in both the US and Germany . If it’s reversed, the German company only has to pay US income tax on US-source income. The Germans only collect taxes on income earned in Germany . A foreign company acquiring a US one avoids a nasty double-taxation trap.
Look at the bigger picture. The profit numbers these big companies report do sound staggering. But it’s these companies who pay the lion’s share of taxes—funding America . If tax dollars did not come from ExxonMobil and other profitable companies, the burden to the American taxpayer would be too great to bear.
These profit numbers do not take into account the millions of jobs directly connected to ExxonMobil’s presence in America or their employees’ taxes. Beyond that, there is the cash flow created by these employees: real estate brokers, dry cleaning businesses, restaurant workers, and even government regulators. These financial benefits are why states offer tax breaks to court businesses. Shouldn’t Congress do the same?
As Congress heads into a lame-duck session, they’ll be looking for ways to increase income to the Federal coffers. Without looking at the big picture, “windfall-profits taxes” seem like a good choice—even though the consumer ultimately pays. Instead, these profitable companies deserve rewards, not restrictions; stimulation not obstruction. After all, no one else can do the job they do.
Learn about Mr. Stolyarov's novel, Eden against the Colossus, here.