Lots of news today about the US Senate hearing on ending tax breaks for US oil companies. This article focuses on one executive’s claim that ending the tax breaks is un-American. Another article says that subsidies for exploration and drilling dates all the way back to 1916.
There is also an explanation of the different ways they measure tax obligations. The companies include local and state taxes, while the Senators are counting only federal taxes.
Just how much do big oil companies pay in taxes?
Exxon Mobil says it pays plenty — more in U.S. taxes than it earned in the United States last year.
Not so, say critics of the oil industry; the Center for American Progress says the oil giant’s effective federal income tax rate is about half the 35 percent standard for U.S. companies. The liberal-leaning think tank, citing Exxon Mobil’s filings with the Securities and Exchange Commission, says the corporation didn’t pay any federal income tax in 2009.
It all depends on how you count.
Exxon Mobil counts everything — not just federal income taxes, but also local property taxes, state taxes, gasoline taxes and payroll taxes. The Center for American Progress (CAP) and other analysts count only the company’s federal corporate income taxes.
“We pay our fair share of taxes,” said Kenneth Cohen, Exxon Mobil’s vice president for public affairs, who in a conference call recently lumped more than $6 of sales, state and local taxes together with every $1 of federal income tax paid in 2010.
But Exxon Mobil’s tax rate is “lower than the average American’s,” Daniel Weiss, an energy expert at CAP, countered in an analysis that put the company’s U.S. federal income tax rate in 2010 at just 17.2 percent.
Of course average Americans also pay state and local taxes. Whatever, it is pretty clear that oil companies–with their high profits–could afford to help with the US deficit better than most.
Unless the US want to continue draining the middle class to support big business and the rich.
Floyd Norris has published a new article on corporate taxes in the U.S. While corporations continue to complain that their tax burden is too high, statistics show that their tax burden is less than before and less than most developed countries.
The I.R.S. 2010 Data Book offers some information. In Table 6 on page 15, it details gross tax receipts for every fiscal year since 1960.
In the 1960s, corporate taxes amounted to about 22 percent of overall tax receipts, and averaged 3.9 percent of gross domestic product. In the most recent decade, the figures are about 12 percent of total taxes and 2.2 percent of G.D.P.
In other words, the corporate tax burden in roughly half what it was.
In times when US debt is a big concern, the next question must be about who faces the extra burden of US debt?
Or here is another set of available data. The Commerce Department calculates total corporate profits as part of its G.D.P report. Looking at 10-year averages to smooth out cyclical swings, pretax corporate profits are now higher than at any time in more than three decades. But corporate tax payments as a percentage of pretax income are lower than at any time since World War II.
So US debt must come at the expense of the taxpayer, and with higher income taxpayers benefiting from lower rates, the middle class faces a bigger burden. Is this any way to encourage growth in the US? Still the corporations argue that their tax rates are higher than in most of the world.
The news here is — or would be if it were true — that American companies face high effective rates. It is true that the 35 percent statutory rate is high by international standards, but there are so many exemptions and loopholes and incentives that relatively little money is actually collected.
If you read the fine print of the study carefully, you see this:
Total income taxes is defined to be the sum of all taxes imposed on income by local, provincial or state, national, and foreign governments during the year. It is the total tax provision and includes current taxes as well as the change in net deferred tax liabilities for the year.
So this counts taxes American companies do not actually pay, but only defer. There are numerous reasons for companies to have deferred taxes, often because tax laws enable expenses to be taken earlier than accounting rules provide. And companies with overseas profits can defer taxes indefinitely by never repatriating the profits.
Suffice it to say that US corporations are avoiding taxes as best they can. We would expect that of any corporation, but that the US government allows it–that is the question.
An interesting article today on the US government debt and how to reduce it. The debt now is 62% of GDP and growing, so there is a sense of urgency to either raise taxes or cut spending–or both.
The problem is that raising taxes is politically difficult, and cutting spending is potentially disasterous. For example, retirement funds will soon fail to cover costs, and health care costs are rising as well.
In both cases, fixing those problems without increasing revenue isn’t feasible. For one, kicking grandma to the curb is not really an option in civilized society. And making adjustments to spending will not happen overnight.
Done right, benefit changes would have to be phased in so future retirees can adjust their plans accordingly. And reducing health care costs requires systemic changes over time.
What are the real costs of high government debt? It is not really explained in the article, but we know that government debt raises interest rates which discourages investment. Higher returns can encourage foreign investment, but at some point the government will have to pay even more for increasing deficits, pushing the burden on to future generations.
Without cutting into retirement or health care, the military is the obvious choice for cuts. That is a problem in the US, but I believe that is the direction the US should consider.
Robert Kuttner has a new article, Austerity Does Not Produce Prosperity. It is a strong statement that current thinking on the need to limit government debt is likely to extend the recession in Europe and the US. Kuttner makes it clear that he believes in Keynesian policy, and does not want to see the west succumb to concerns over debt.
The budget deficit here and overseas does need to return to a more moderate level — after we get an economic recovery. But the problem with the austerity treatment during a recession is that if everyone tightens their belts at once, there is nobody to buy the products; the economy shrinks and repayment of debt is even more arduous. As John Maynard Keynes famously wrote, “The patient does not need rest. He needs exercise.”
Kuttner goes on to review the recovery of the Great Depression, when the US experienced a debt/GDP ratio of 120%. Of course, they went on to pay-off debt with rapidly expanding incomes through the 1950’s and 60’s. Kuttner claims the situation today is different because the spending came in the 40’s because of the war, and common folk were helping finance the debt buying war bonds.
I am not so sure the US debt has not been helped along with spending in the military activity in Afghanistan and Iraq. Rather, the difference might be that these wars are not creating new industry and new training for workers.
But all of the war spending recapitalized industry, re-employed and trained jobless workers; and after the war pent up consumer demand powered a record boom and rising revenues paid down the debt.
There was plenty of wartime sacrifice, but it was shared. Citizens bought war bonds and used ration books. There were wage and price controls. Surtaxes on high incomes were over 90 percent. Interest rates were administered through a deal between the Treasury and the Fed, and the war debt was financed with cheap money.
It seems to me that Kuttner is pointing out enough differences that there may be room to disagree with his main point, that we should follow history’s example.
Fears of a hand-cuffed financial industry have driven the value of the Euro to 18 month lows, and markets world-wide are dropping in value because of fears for the European economy.
The president of the European Central Bank, Jean-Claude Trichet, in an interview published Saturday, warned that Europe was facing “severe tensions” and that the markets were fragile.
For Europe’s banks, the problems are twofold. Short-term borrowing costs are rising, which could lead institutions to cut back on new loans and call in old ones, crimping economic growth.
At the same time, seemingly safe institutions in more solid economies like France and Germany hold vast amounts of bonds from their more shaky neighbors, like Spain, Portugal and Greece.
Investors fear that with many governments groaning under the weight of huge deficits, the debt of weaker nations that use the euro currency will have to be restructured, deeply lowering the value of their bonds. That would hit European financial institutions hard, and may ricochet through the global banking system.
At the same time, some European producers are happy with the Euro devaluation, as export revenues have already increased and export demand should increase. World-wide, one fear stems from the big increase in government deficit levels.
The world’s budget deficit as a percentage of gross domestic product now stands at 6 percent, up from just 0.3 percent before the financial crisis. If public debt is not lowered back to precrisis levels, the I.M.F. report said, growth in advanced economies could decline by half a percentage point annually.
If the fears turn-out to be justified, this seems a classic example of crowding out, where government deficit spending raises interest rate to levels that discourage private investment.
Two articles caught my eye this morning, one on plans for the Federal Reserve to tighten money growth as recovery allows, another on the growth of the US trade deficit.
I was surprised that the trade deficit had grown lately, thinking that lower exchange rates had already boosted US exports. In fact, that has happened, but the growth in oil imports has overwhelmed the export growth in heavy machinery and commercial airplanes. It is predicted that deficits may continue to grow as American incomes grow and import demand increases.
But how will the Fed’s plans affect that?
Bernanke said the Fed will likely start to tighten credit by boosting the interest rate it pays banks on money they leave at the central bank. Doing so would raise rates tied to commercial banks’ prime rate and affect many consumer loans. Companies and ordinary Americans would pay more to borrow.
Initial response is that borrowing will decrease and import demand–for better or worse–will probably decrease as well. But what happens to the interest income? Just a thought, but if the interest elasticity is inelastic (< 1), the actual quantity of debt will increase with higher rates.
The point of the rate hike is said to be controlling inflation, but what if the rate hike brings more money into circulation?
There is likely a mistake in my thinking here. Please point out my mistakes.
(Don’t forget to visit alphainventions.com)
A Chinese think tank has come out with an essay that argues against pressure to increase the trading value of the Yuan. The general argument–a bit self serving–is that an increase in the exchange rate will hurt China’s growth and hinder the recovery of the global economy.
The essay also asserted that lifting the value of the yuan would not help narrow China’s trade surplus with the United States, as the Obama administration has claimed it would.
China’s cheap goods have helped foreign consumers facing hard times, and raising the value of the yuan could hinder global economic recovery, said the think-tank.
The last argument is the one that makes sense to me. Paying less for imported goods–especially when demand is inelastic–means consumers will have extra income left over for the purchase of other goods. Yes, that would help foster global recovery.
Stock markets slid slightly lower on Wednesday, undoing early gains as investors worried that rising interest rates on government bonds and home mortgages could impair the broader economy.
Investors shied away from Treasury debt, pushing interest rates higher, amid more worries that the government’s fund-raising needs would overwhelm demand in the bond markets.
Overwhelm demand? Yeah, I think they just mean there will be a shortage of saved money and interest rates will continue moving up. The bad part comes when investors start considering funding a new project, see that it is too expensive and walk away from the project–the classic monetarist critique of Keynesian economic policy.
In a curious pairing of news from the US yesterday, 598,000 people found themselves newly unemployed in January, and the unemployment rate rose to 7.6%. At the same time, US stock indexes all rose between 2 and 3 percent.
Why would stocks react positively to such dire economic news? Two reasons I can think of, both probably contributing to the optimism of speculators/investors.
One, it is likely that many expected the news to be worse than it was. When news came out that unemployment rose to 7.6%, investors were probably relieved that it was less than the 7.9 or 8% that many had expected.
Two, it was also reported that crude oil prices fell, which lowers production and transportation costs, and could spur investment without many more incentives.
Another report suggests that the bad economic news will improve chances that Obama’s stimulus package will be approved by the US Senate.
Nonsense. The mostly partisan debate about the stimulus bill involves petty political staging, and idealogical differences on the value of deficit spending. Bad economic news will not influence either.