Sixty-nine percent of Americans oppose raising taxes on oil and natural gas companies.
That surprising statement is the upshot of a new survey released by polling service Harris Interactive (UNKNOWN: HPOL.DL ) . And while the fact that it reached this conclusion at the behest of its client, the American Petroleum Institute, isn't exactly a shocker, the details of Harris' survey are.
Take the demographics of the survey, for example. Surprisingly, the people Harris chose to answer its poll skewed "liberal" a bit. Of the 1,000 registered voters polled, 48% say they "approve ... of the job that Barack Obama is doing as president." What's more, a significant plurality of those polled identified themselves as Democrats (34%), rather than Republicans (27%) or independents (29%).
So what kind of legislation does it take to persuade voters to rush to the defense of Big Oil?
What are you against?
Let's start with what exactly it is that these "69% of Americans" say they're against. API commissioned Harris to run its poll in response to an Obama administration proposal to impose "$90 billion" in new taxes on the oil and natural gas industry. Specifically, the proposed new taxes break down like this:
- $28.3 billion: to forbid "last-in, first-out" accounting, a standard method of accounting, but one that makes a company look less profitable when the costs of its raw materials (in this case, oil) are rising.
- $17.4 billion: to deny the oil and gas industry the tax breaks contained in the 2004 American Jobs Creation Act. Manufacturing companies get to deduct 9% of their costs when creating domestic jobs. Oil and gas companies can deduct only 6% -- and now the administration wants to cut that to 0%.
- $11 billion: to prevent companies' writing off "intangible drilling costs" incurred when getting a well ready to produce. API analogizes these costs to the research and development work that a semiconductor company must do -- and gets to write off -- before it can start selling computer chips. Last year, Intel (NASDAQ: INTC ) reported spending $10.3 billion on such R&D work, putting 19% of its revenues out of reach of the tax man, but the president's budget proposal would leave that tax break untouched.
- $11 billion more: to tax foreign-earned income of U.S.-based companies twice (to encourage more business to be done in-country).
- $10.7 billion: to forbid of accounting for oilfield development costs based on "percentage depletion" as an oilfield's reserves are used up.
- $10.1 billion: to levy Superfund taxes on the industry to pay for cleaning up toxic waste -- which may or may not have been created by oil and gas companies in the first place.
- $1.4 billion: to require that money spent on geological and geophysical research, to find oil and gas reserves, be expensed over longer periods of time.
- And finally, rounding out the $90 billion figure, $100 million and change to repeal deductions for using "tertiary injectants" to improve oil flow from a field -- for example, by sequestering carbon in an old oil well, to help both (a) get rid of the greenhouse gas and (b) force more of the oil out so it doesn't get wasted.
$28.3 billion here, $11 billion there -- pretty soon, you're talking real money
So right off the bat, we can see there are some pretty big sums at stake in this proposed legislation. It's not hard to understand why an oil industry mouthpiece like API would oppose them. It's not hard to understand why investors in oil stocks might be a bit upset as well.
Let's get specific
But how much might these taxes actually cost the oil companies that we, as shareholders, invest in?
API says the oil and gas industry as a whole already pays "more than $86 million to the federal Treasury every day." This works out to an industrywide tax bill upward of $31 billion -- so by loading $90 billion on top, the administration is proposing to quadruple the industry's tax bill, which does sound a bit harsh.
Using the rough "quadrupling" estimate as a ballpark figure, and spreading it out across the industry equally, you might think ExxonMobil's (NYSE: XOM ) tax bill, for example, would go from last year's $30.4 billion to nearly $120 billion -- wiping out the company's $45 billion profit entirely.
The truth may not be quite as bad as that (for shareholders) -- nor as lucrative as that (for taxpayers hoping Exxon will shoulder more of their burden). You see, while Exxon paid more than $31 billion in taxes last year, the vast majority went to the foreign countries in which it does business, and from which it obtains much of its oil. Exxon actually only paid the IRS a bit under $3 billion. So even in the worst-case scenario of a quadrupling of Exxon's U.S. income-tax liability, we'd probably only be "milking the tiger" for an additional $9 billion in taxes, reducing the company's profits by 20%.
Similarly, only $687 million of ConocoPhillips' (NYSE: COP ) $7.9 billion in 2012 taxes ended up at the IRS.
Chevron (NYSE: CVX ) investors, on the other hand, may have more to worry about, as $3.9 billion of the $20 billion it spent on income taxes in 2012 went to the United States. Pass all of these new taxes and impose them on Chevron ... and its U.S. tax bill could swell to perhaps $15.5 billion, reducing its profits by $11.6 billion -- or 44%.
So why do conservatives and liberals alike oppose higher taxes on oil and gas companies? Maybe they just own a lot of Chevron stock.