Exxon Mobil announced recently the highest annual profits by a US corporation in history. Reaction was predictable – the US Congress was littered with outraged politicians calling for a windfall profits tax. But that would be wrong, and the Tax Foundation can explain why much better than I:
While they were recording record profits last year, they were also writing checks to Uncle Sam to the tune of $100.7 billion — two and a half times what they made in net profit. In fact, previous Tax Foundation research found that from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today’s dollars, that’s $2.2 trillion.
This is followed by a nice segue into one of my favourite topics – hammering home the point that corporations don’t pay taxes.
Economists across the ideological spectrum agree that individuals bear the burden of business taxes. As stakeholders, we all pay in one of three ways: The first to pay are the employees of oil companies here in the U.S. — people who would make lower wages or perhaps even lose their jobs. Next would be the millions of Americans who have investments in the oil industry — people who would earn lower returns on those investments. And finally, the principal group to pay would be American gasoline customers — the millions of people who would pay more at the pump.
The main reason why the company can boast such a huge net income is simply because it’s so large in general. Formed when Exxon and Mobil merged in 1999, the company is the largest in the world by market value and revenue. It’s (obviously) the largest of the six “supermajor” oil companies. Income as a percentage of revenue is a reasonable 10.5%.
When groups try to tax ‘windfall’ profits they usually make the assumption that the profit made by an ‘evil’ corporation is zero sum. They assume that every dollar of tax = one less dollar of profit. So if they place a $100 million tax on Exxon, then Exxon will have exactly $100 million less profit. The idiocy of this idea is so elementary that I almost fear arguing against it, for fear of setting up a staw-man argument.
Well of course, because corporate profits get swallowed up in the gaping maw of capitalism, never to bestow the benefits of the created wealth upon the host civilization!