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Tax Incentives vs. Subsidies



May 23, 2011 – Comments (6) | RELATED TICKERS: XOM

Board: Exxon Mobil

Author: madamebutterfly1

Mm. Butterfly:
All left loonies, the Salesman-in-Chief included, are screeching about XOM's profits vs $4 billion annual tax subsidy industry gets from the government. Sure, they are not whining about these profits making their pension funds fatter. Usual hypocrisy. Do you (or anybody else for this matter) know what amount if any of this XOM gets? vzal

I just want to clarify that it is a misnomer, and I would say, objectively misleading to refer to tax incentives that have been on the books for decades and decades, as "subsidies"-- they are not.

The majority of these tax incentives ("subsidies") that are being debated are really tax deductions for Research and Development, permit accelerated depreciation for new equipment to incentivate companies to invest in America instead of overseas, and through this process create American Jobs.

It should be noted that many of the tax incentives or tax breaks are available not only to the oil industry but to other manufacturing industries as well.

I don't know how much of the $4 billion that you refer to in your write up would go to Exxon, but presume it is a small number.

ExxonMobil for example, has paid an effective tax rate of 32% over the past 5 years, where the U.S. average for manufacturing industry has been about 27%. So it is not as if the industry and/or Exxon are getting away with murder, as for example, GE which paid not income tax last year.

But the tax money is not the only issue but rather the political philosophy that motivates this administration to pursue such a course to damage oil.

First of all, the politicians targeted the five biggest oil companies (Exxon, Chevron, Shell, BP and ConocoPhillips). They would be the only ones that would have the tax deductions taken away. And I ask myself, what about due process and a level playing field? Why provide tax incentives to some of the competitors and not to others -- is this not discriminatory?

To me this selective application of tax deductibility is outrageous.

It is also a political cheap shot by the President and his democratic party minions to deflect anger and frustration with the high gasoline prices at the pump, and to deflect as well the fact that they have been slow at opening areas for the oil industry to explore and create jobs here in America. And the OPEC countries have taken notice.

No question in my mind that there has been an ongoing war on oil that Obama and his environmental leftwing fanatics have been promoting and supporting for the last two and a half years since he took over the Presidency. It is class warfare at its best!!! Kick the rich, "mean" and "undeserving" oil company, that are "gouging" the consumer and making outrageous profits. No mention of course that the government takes in taxes almost 3 to 5 times what companies make at the pump.

The second aspect of this tax elimination process, and to me it is the more troubling and potentially dangerous aspect of this issue for global oil companies like ExxonMobil, is the terrible signal that our government sends to other governments hosting oil company's business, by its arbitrary and discriminatory behavior (by selectively changing the rules of the investment game). Hell, if I am a foreigh government I can say that if the U.S. can change the rules of the game to "punish" the oil companies because they are making too much money already, why should anyone criticize me, Chavez, or Correa, or some Arab dictator who wants to do the same to increase government revenues?

It is good that we briefly review a little bit of recent tax history. Back in the 90's Bill Clinton granted some specific tax breaks to oil companies that would explore in deepwater Gulf. The idea was to increase domestic oil production (which by the way was falling at the time, and which the government wanted arrested and if possibly reversed. Guess What? the oil industry has achieved two consecutive years of increased production thanks to deepwater Gulf and the tax incentives)

Many oil companies motivated by Cinton's tax incentives took the plunge and the risk, went into deepwater Gulf, and in the process it has created thousands of HIGH PAYING American jobs while increasing production. Some of the oil companies have struck it big and are making a lot of money, but others have not, and even others have had costly accidents in the process that have raised the risk and insurance premiums and the cost of complying with new regulations for everyone engaged in deepwater exploration activity.

Oil companies have opportunity elsewhere. As a country we should do everything that we can to attract investment on our soil to create jobs. Capital is fungible.

Exxon's position as I understand it has been very simple. If you want to take away the tax incentives for manufacturing, do it, but do it equitably for every industry and every company that gets it today. It would be unfair otherwise to punish the five most successful company out of political convenience.

Fortunately, the Senate has killed the idea.

Madame Butterfly

6 Comments – Post Your Own

#1) On May 23, 2011 at 12:04 PM, NajdorfSicilian (99.73) wrote:

GE did pay income tax last year. The NYT already amended their errors which were pointed out in multiple fin'l sources.

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#2) On May 23, 2011 at 12:39 PM, L0RDZ (91.04) wrote:

WOW GE paid tax ???  are you sure ?  crying ?


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#3) On May 23, 2011 at 6:18 PM, leohaas (30.08) wrote:

Call them "Tax Incentives", call them "Subsidies": the bottom line is the same. Some targeted individual or a group (likely one with a strong presence on K-street) gets money that is not available to other individuals or groups.

It could well be that they do something good with that money, such as deep water drilling or providing a limitless supply of cheap food (always good if you are leading a nation, unless you want to end up like Marie Antoinette). But there is NO difference in how they get the money: by government intervention.

As a nation, we have to decide if this is good use of money. If so, let's keep on spending it like we are doing. If not, cut it!

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#4) On May 23, 2011 at 6:27 PM, ETFsRule (< 20) wrote:

"The majority of these tax incentives ("subsidies") that are being debated are really tax deductions for Research and Development, permit accelerated depreciation for new equipment to incentivate companies to invest in America instead of overseas, and through this process create American Jobs."

Before we accept this as the truth, can someone provide a source where the details of these tax incentives are laid out?

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#5) On May 23, 2011 at 6:32 PM, Melaschasm (< 20) wrote:

Depreciation is a reasonably accurate reflection of reality which adjusts when the income and taxes are recognized, which is not the same as a subsidy.

However, special tax incentives for deep water drilling is corporate welfare, and a bad idea.  

Obama and the democrats love to attack Big Oil, and occasionally they have a point.  Unfortunately their good ideas tend to be lost in the midst of the lies they tell to make a big deal about a relatively small issue.


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#6) On May 23, 2011 at 6:56 PM, bootz27 (< 20) wrote:

tax incentives are your own money. subsidies are someone eles money.

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