News Brief 2008 Oil Company Profits

The president argues that closing the tax loopholes would raise “taxes in a way that will lead to higher energy costs to U.S. consumers and businesses.” The Congressional Joint Economic Committee evaluated this claim and concluded that there is little evidence to support it, saying, “Because the removal or modification of the tax deduction does not affect production decisions...removing or modifying the tax deduction will have no effect on consumer prices for gasoline and natural gas.” The Committee also notes that oil prices are much higher since the loopholes were established.

Opponents also argue that the elimination of this $13.5 billion in tax breaks will deprive big oil companies of the revenue they need to explore and develop oil and gas resources. This ignores the over half a trillion dollars in combined profits earned by the big five oil companies since 2001. (See profit chart). The $13.5 billion in tax breaks, collected over a decade, is less than 3 percent of these companies’ total profits over the last seven years. BP, Chevron, Shell, and ExxonMobil each had more than $13.5 billion in profits during the first three quarters of 2007. The closed loopholes are a drop in the barrel compared with big oil profits.

Rather than invest significant amounts of these profits in the development of clean, renewable energy alternatives, or even in exploration for new oil and gas, big oil companies invested a significant portion of these profits in buying back their own stock. Big oil spent 38 percent of their profits—nearly $55 billion—on stock buybacks beginning in 2005. (see chart from Money Guzzlers) This does nothing to add to the U.S. supply of either new, clean energy, or oil and gas.