Oil and gas companies are making record-high profits this year due to Russia’s invasion of Ukraine and the subsequent energy crisis.
Exxon, the nation’s largest oil company, reported $20 billion in net income in the third quarter, which is triple the amount last year during the same time period. It is also the highest quarterly profit in Exxon’s history. Exxon’s shares are up 76 percent. Chevron, the nation’s second-largest oil company, reported $10.8 billion in earnings, almost double the $5.7 billion the company made last year. Chevron’s shares are up 56 percent.
Tax Deferments and Subsidies for Oil Companies
Big oil companies in the U.S. pay a significantly lower tax rate than most other companies. There are provisions in the tax code allowing energy companies to defer and avoid income tax payments. The 2017 Tax Cut and Jobs Act decreased the effective tax rate for companies, with oil companies getting some of the biggest benefits from the legislation because they can defer taxes. A 2014 report by Taxpayers for Common Sense found that the 20 biggest oil and gas companies deferred payments on up to half of their federal income tax from 2009 to 2013. Those same companies paid 11.7 percent of their pretax income, which is 23.3 percent less than other corporations paid.
Big oil companies also receive subsidies, including tax credits and exemptions. One example of a subsidy is one that allows oil companies to avoid paying taxes on intangible drilling costs. The subsidy began in 1916, and it allows oil companies to deduct all of their expenses that are not directly associated with an oil well’s final operation.
A Windfall Tax
President Biden said in a speech that he would work with Congress to pass a windfall profits tax on oil and gas companies. Biden said that if oil and gas companies didn’t increase production and refining capacity in order to lower prices at the pump, “they’re going to pay a higher tax on their excess profits and face other restrictions.” He added that his administration will work with Congress “to look at these options that are available to us.”
A congressional bill, the Consumer Fuel Price Gouging Prevention Act, passed in May by House Democrats, would empower the President to make excessive price gouging for gasoline and home heating fuels illegal. It would also empower the Federal Trade Commission to issue penalties on companies that are price gouging. Congressional Democrats made efforts to implement a windfall profits tax. The EU already implemented a windfall tax on certain energy companies.
In October, California Governor Newsom announced his plans to convene a special legislative session in early December to focus on implementing a windfall tax on oil and gas companies.
“Big Oil and Gas companies are taking advantage of their consumers while they pollute our environment and attempt to lock us into a future of more profits through expanded fossil fuel production, “said Sierra Club Deputy Legislative Director Mahyar Sorour in a statement. “We applaud President Biden for his statement and urge him to work closely, and swiftly, with Congress to enact windfall profits tax, end the practice of price gouging by energy companies, and stop sending handouts to these multi-billion dollar companies.”