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All Hail Exxon

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Thu, Feb 14, 2008 at 1:01 pm

    All Hail Exxon

    2-14-08 by dugan (and thanks to Mark Reback for the tip)

     

     

    I can’t believe Investors Business Daily would do so little checking of an editorial on Tuesday slamming the critics of ExxonMobil, from Sen. Carl Levin to our small foundation. As a former editorial writer, I’m reluctant to call attention to such a shoddy piece. But it just begs for comment.

    The editorial, “Record Profits Mean Record Taxes,” is based in large part on a blog post by Mark Perry, an economics professor at the Flint, Mich., satellite campus of the University of Michigan and, more revealingly, an adjunct scholar at the hard-right, free-marketeer Mackinac Center for Public Policy.

    The Perry blog post is also making the rounds of free-marketeer web sites with its argument that Exxon pays so much tax that we must offer gratitude instead of criticizing its record $40.6 billion profit in 2007, or its $39.1 billion in 2006 profit.

    Perry’s bottom line is that poor people don’t pay taxes like Exxon does, and thus Exxon is the better citizen. But he doesn’t even prove this point.

    Perry notes from Exxon’s year-end unaudited figures that it paid, or expected to pay, $30 billion in taxes worldwide to all governments at all levels for 2007, on pre-tax profit of $70.6 billion, which would be a 42% tax rate.  That’s 42%, of course, after the accountants have deducted or excluded or stashed overseas every possible cent. The $30 billion in taxes can also be viewed as about 7% of Exxon’s total revenue,  $405 billion.

    Prof. Perry notes that over three years, Exxon’s annual taxes average $27 million. He then makes a comparison to U.S. income taxes paid in 2004 by the bottom half of American taxpayers, a measly $27.9 billion total. He calls that a 4% tax rate.

    Here’s what Perry, much less the IBD editorial, forgets to mention about those taxpayers:

    – Their average taxable income is about $14,000 a year.

    – Their federal income tax at that level would be dwarfed by payroll taxes for Social Security and Medicare/Medicaid (7.65%).

    – State and local income taxes are not included.

    -Sales taxes are not included

    – Property taxes, or landlord property taxes as part of rent, are not included.

    – Vehicle registration and taxes are not included.

    – Even state and federal gasoline taxes (non-sales) are not included.

    – None of these low-income Americans’ taxes went to Kazakhstan, Chad, Nigeria or other corrupt nations with which Exxon does business. Some certainly went to U.S. costs linked to keeping Exxon’s overseas investments safe — such things as naval costs for protection of oil shipping lanes.

    – None of these little taxpayers shared in the billions of federal government subsidies to oil companies that their taxes also helped fund.

    The comparison is the ultimate apples to oranges, and completely mean-spirited.

    The IBD editorial goes on to say:

    "That [Exxon] profit, so loathed by the left, actually plays an important role. No, it’s not used to light the fat cigars Exxon Mobil executives smoke to celebrate the successful squeezing of consumers.

    "Rather, the money is plowed back into research, development, exploration and drilling to keep the oil flowing, and distributed to stockholders who have risked their capital to build an enterprise that provides an essential good — the lifeblood of our economy."

    On the cigar point, the editorial is probably right. On the rest, hardly.

    Over the last three years, Exxon has spent an average of at least $25 billion a year on buying back its own stock instead of investing in growth or modernization. The buybacks are a corporate piggy-bank with little or no economic use except for keeping the stock price high. It doesn’t even boost dividends.

    Exxon’s daily cash on hand in 2007 averaged $33 billion. Yet it continues to resist paying $2.5 billion in punitive damages to Alaskans permanently harmed by the negligent Exxon Valdez oil spill in 1989. Imagine what Exxon’s lawyers are being paid, year after year, on this case.

    And, just to compare to those $14,000-a-year folks, some of whom are probably Exxon employees, Exxon’s 2006 compensation to CEO Rex Tillerson included $13 million in direct payment, another $13.5 million in stock grants, and $480,000 in perks including $100,000 for "personal use" of the corporate jet. That doesn’t include his right to more than $20 million any time he decides to "retire."

    On second thought, I’m proud not to be admired by a publication that would editorialize on the basis of numbers so manipulated and so misused in the service of Exxon.

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