Does Big Oil Pay Its Fair Share?
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Last year during the presidential campaign and the fiscal cliff discussions many politicians and members of the media claimed that "fat cats and millionaires" were not paying enough of the federal tax burden and their rates needed to go up. To me the argument didn't hold much water. Research that I did indicated that the top 1% of earners paid about 40% of the tax burden last year. The bottom 50% paid about 2% of the total tax. I would say the fat cats are paying their fair share.
Also, some people complain that big oil companies get too many tax breaks and don't pay enough. One initiative proposed by the administration would have eliminated the deduction that oil companies are allowed to take for the portion of oil and gas that is produced domestically.
Does big oil pay its fair share?
I obtained data from Thomson Reuters Fundamentals via FactSet Research Systems for 2011 (the last year that a complete set of data was available).
The top three companies ranked by total corporate income tax paid were all oil companies. Their combined bill was $55.3 billion.
Topping the list was ExxonMobil (NYSE: XOM), which issued a check for $27.3 billion to the IRS. The company reported revenue of $486 billion and net income of $41 billion in 2011.
The Houston-based ExxonMobil is the world's largest oil producer and is also number one on the Fortune 500 list in the revenue category. The company is taking advantage, not of high oil prices, but of the economic boom created by the use of innovative technologies in energy production such as hydraulic fracturing, horizontal drilling and improvements in deep water extraction. ExxonMobill also has plans in the works for several liquid natural gas conversion facilities that will take advantage of low natural gas prices.
Number two on the tax list was Chevron (NYSE: CVX), which paid $17.4 billion. The company, headquartered in San Ramon, CA, reported net income of $27 billion. Revenue totaled $254 billion putting the company at number three on the Fortune 500 list in that category.
Chevron is very similar to ExxonMobil in most measures. Both are mega caps (companies with market cap > $200 billion), have low P/E's (below 10), flat EPS growth rates, low amounts of debt, lots of cash, and are dividend payers (and growers).
Rounding out the top three was ConocoPhillips (NYSE: COP). The company is also based in Houston. It paid $10.6 billion on revenue of $251 billion, putting it fourth on the Fortune 500, and had net income of $12.4 billion in 2011.
ConocoPhillips is also very similar to the other two oil giants except it is expected to have faster earnings growth going forward. It has a larger dividend yield as well.
At number four and the first non-oil company to appear on the tax list was JPMorgan Chase & Co. (NYSE: JPM). The banking giant from NYC, which is recovering from the last year's "London Whale" trading scandal, paid $8.2 billion to the government. It had revenue of $111 billion and net income of $19 billion.
Company president, CEO and chairman James Dimon paid the price for the trading problem which resulted in a $6 billion loss. His 2012 pay was 50% lower than in 2011 when he earned about $23 million in compensation.
Big oil (and a big bank) paid a lot more money than one of the government's favorite companies, General Motors (NYSE: GM). The automaker accepted a taxpayer bailout (the Treasury still owns shares of GM stock), received special treatment during its bankruptcy process a few years ago and buyers of its Chevy Volt electric vehicle receive a federal subsidy.
"Government Motors," as some people refer to the company, generated revenue of nearly $150 billion and netted $9 billion after taxes. However, their tax bill was a mere $570 million.
So it appears to me that big oil certainly paid their fair share of corporate income taxes in 2011 but maybe big auto didn't. I hope the politicians and the media will look at the right numbers in the future.
Mathman6577 has no position in any stocks mentioned. The Motley Fool recommends Chevron and General Motors. The Motley Fool owns shares of JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!