by Daniel J. Weiss and Seth Hanlon
Republican presidential candidate Mitt Romney’s economic plan slashes corporate tax rates while failing to identify a single corporate tax loophole to eliminate. Highly profitable large oil companies that already enjoy lucrative tax breaks stand to receive some of the biggest benefits from Gov. Romney’s plan.
The world’s five biggest public oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Royal Dutch Shell—would keep special tax breaks worth $2.4 billion each year. And by cutting corporate tax rates, the Romney plan could lower the companies’ annual tax bill by another $2.3 billion, based on an analysis of the companies’ tax expense for 2011. The special tax breaks, supplemented by Gov. Romney’s lower corporate rates, could benefit the oil companies by more than $4 billion annually.
As we will show, these five companies are hardly in need of a tax cut: They earned a combined record profit of $137 billion in 2011 due to high oil and gasoline prices.
Breaking down Gov. Romney’s tax breaks for Big Oil
Gov. Romney’s economic plan proposes to cut the corporate income tax rate from 35 percent to 25 percent—nearly a one-third reduction. That could provide a combined tax cut of at least $2.3 billion annually to the five largest publicly owned oil companies, according to an analysis of their 2011 public financial statements. That includes $1.5 billion for the three domestic oil companies and $800 million for the two foreign-owned companies. Since it is of course impossible to predict their future profits, this estimate is based on their 2011 financial data, including their U.S. federal income tax expense. (See the methodology section for more information.)
In addition, existing oil tax breaks would be protected under Gov. Romney’s plan. Though he has spoken in general terms about broadening the tax base, he has failed to name even one corporate tax loophole he would eliminate. His campaign has specifically criticized President Barack Obama’s efforts to close oil tax loopholes. And his chief energy advisor, oil executive and Romney super PAC donor Harold Hamm, has urged Congress to maintain the oil industry’s special tax breaks.
Preserving Big Oil’s existing tax breaks would save the five companies $2.4 billion annually, according to the Congressional Joint Committee on Taxation. The value of these tax breaks for each company is not public. But using the rough proxy of apportioning them according to the companies’ U.S. revenue, the three American companies receive approximately $1.9 billion of these tax breaks while the two foreign companies receive $500 million.
Under reasonable assumptions, the five oil companies’ total annual tax bills would be $4.2 billion less than they would be without the special tax breaks that Gov. Romney would preserve and without Gov. Romney’s corporate tax rate cut. (This is less than the sum of the estimates of the two elements of Gov. Romney’s plan because of interactions between them—reducing tax rates lowers the value of deductions.)
None of these figures includes the impact of Gov. Romney’s proposals to exempt overseas profits from U.S. taxes or to allow existing overseas profits to be repatriated at a special low tax rate. The three U.S. companies—ExxonMobil, Chevron, and ConocoPhillips—stashed away a combined $76 billion in profits overseas at the end of 2011. Adding in the benefits to the oil companies of these parts of the Romney plan could greatly increase their largess from a Romney presidency.
The oil tax windfall would be the same under the House-passed fiscal year 2013 budget resolution sponsored by House Budget Committee Chairman Paul Ryan (R-WI), which Gov. Romney endorsed. The Ryan budget also lowers the corporate rate to 25 percent while keeping the existing tax breaks for these five companies. Gov. Romney heartily endorsed the Ryan budget plan, saying, “I applaud it. It’s an excellent piece of work, and very much needed.”
The chart below shows the oil companies’ average annual tax breaks and their new cuts under the Romney-Ryan plan in addition to their profits last year.