Exxon's 2007 Tax Bill: $30 Billion

by: Mark Perry February 05, 2008 | about stocks: XOM    

Mark J. Perry, Ph.D.

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Corporate profits receive a lot of media attention, but what receives considerably less attention are the corporate taxes paid on corporate profits. Do a Google search for "Exxon profits" and you'll get about 8,000 hits. Now try "Exxon taxes" and you'll get a little more than 300 hits. That's a ratio of about 33 to 1.

I'm pretty sure that Exxon's tax payment in 2007 of $30 billion (that's $30,000,000,000) is a record, exceeding the $28 billion it paid last year.

By the way, Exxon pays taxes at a rate of 41% on its taxable income!

[Update: The $40.6 billion and $39.5 billion figures are after-tax profits. For 2006, Exxon's EBT (earnings before tax) was $67.4 billion, it paid $27.9 billion in taxes (41.4% tax rate), and its NIAT (net income after tax), or profit, was $39.5 billion.]

Over the last three years, Exxon Mobil has paid an average of $27 billion annually in taxes. That's $27,000,000,000 per year, a number so large it's hard to comprehend. Here's one way to put Exxon's taxes into perspective.

According to IRS data for 2004, the most recent year available:

Total number of tax returns: 130 million

Number of Tax Returns for the Bottom 50%: 65 million

Adjusted Gross Income for the Bottom 50%: $922 billion

Total Income Tax Paid by the Bottom 50%: $27.4 billion

Conclusion: In other words, just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers, which is 65,000,000 people! Further, the tax rate for the bottom 50% is only 3% of adjusted gross income ($27.4 billion / $922 billion), and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).

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This article has 79 comments:

  •  
    Feb 05 12:02 PM
    Let's all remember that Exxon-Mobil didn't in reality pay any taxes at all. We all paid that huge tax bill in the form of higher prices at the pump. Corporations never pay taxes, they just pass them on in the cost of their goods and services.

    We'd all be way better off eliminating corporate taxes completely, and generating federal revenue exclusively from individual income taxes. Gross national individual income/federal budget = average tax rate. Sliding scale: those making the least pay a much lower percentage, those making the most (benefiting the most from our society and economy) pay a higher percentage. To file your taxes you look at one table. No exemptions. All sources of income count the same. This would give us a balanced federal budget every year, too.
    Reply | Link to Comment
  •  
    Feb 05 01:03 PM
    also a huge amount of their profits come from international drilling and refining.
    they bring home the bacon to the US
    Reply | Link to Comment
  •  
    Feb 05 04:56 PM
    Now its clear why we don't matter.
    Reply | Link to Comment
  •  
    Feb 06 08:21 AM
    Just think if XOM's taxable income was in line with the rest of the tax paying public we could totally eliminate taxes for the "lower 50%" and make a step toward leveling the income tax playing field.
    Reply | Link to Comment
  •  
    Feb 06 09:42 AM
    BKR, the "lower 50%" already pay no income taxes. XOM makes less profit as a percent of revenue or a return on capital employed than most other businesses in the US. Why don't we tax the hell out of Microsoft or Pepsico or any of those high return companies? Could it be that its not politically expedient? Taxing a company because it is big is ridiculous.

    Actually, taxing any company is ridiculous. As someone above so rightly pointed out, businesses don't pay taxes. They pass them on as a cost of doing business. We as consumers pay the taxes.
    Reply | Link to Comment
  •  
    Feb 06 11:40 AM
    A couple commenters aren’t quite on target regarding who pays the ExxonMobil (XOM) tax bill.

    The fact is that consumers do not pay XOM's income tax bill (I believe that Mark Perry refers only to the income tax bill.) Only XOM shareholders pay that bill. Taxes are paid on net income, which is the profit left after costs incurred in the manufacturing process (e.g., higher crude oil prices; energy input costs; etc...)

    The taxes that consumers do pay related to XOM are the excise taxes (state and federal) on gasoline. These are completely unrelated to the pre-tax price at which a retail gasoline merchant sells product. That price is a function of manufacturing / transport / marketing costs and the competitiveness of the market. Retail gasoline is as close to a textbook price-competitive market as one can find (at which price equals marginal cost.)

    As a former corporate finance specialist for ExxonMobil I can assure readers that the retail gasoline and diesel business in North America is usually only marginally profitable. The attractive returns in the integrated oil and gas business recently have been in refining, where huge barriers to entry and rewards for economies of scale exist, and of course in the highly risky business of exploring for, finding and producing crude oil.

    Finally, even though consumers do not directly pay XOM's income tax bill when they buy gasoline at an Exxon or Mobil station, we pay it nevertheless because most of us are XOM shareholders to some degree. From blue-collar workers to Wall Street titans we have an interest in pension funds or investment portfolios that carry large chunks of XOM stock.

    As Peter Drucker once noted, if we define socialism as the common ownership of economic assets then the United States via it's pension funds and widely dispersed investment wealth is the most socialist nation in human history.
    Reply | Link to Comment
  •  
    Feb 06 02:22 PM
    The math does not add up correctly. This is a bogus article. Completely fabricated. The top US Corporate tax rate is 35%. So Exxon cannot have a tax rate of 41.4%, impossible. The lower 50% of American Income is $14,000 on average according to this jokster. Jesus, we must be an exceptionally poor nation to have such a low income average for half the nation. I dare say his facts are fucked or America is a third world developing country.
    Reply | Link to Comment
  •  
    Feb 06 04:03 PM
    vikingv:

    An American individual doesn't begin to pay income taxes until he has adjusted gross income of slightly north of $30k. Up to that level deductions serve to negate any income tax.

    The 35% rate is a marginal US income tax rate. The 41.4% rate is an average rate that covers all sorts of income (much of it outside the US) fro sales, asset dispositions, etc..., some of which is taxed at rates much higher than 35%.

    Not that you're particularly interested in accurate details...
    Reply | Link to Comment
  •  
    Feb 06 04:32 PM
    Whoops... actually the $30k AGI figure I cited is for a joint return. For an individual the taxable AGI threshhold is around $20k or so.
    Reply | Link to Comment
  •  
    Feb 06 05:08 PM
    For a Ph.D. in economics, you have a poor understanding of the terminology of your field. Do you know the difference between "income tax expense" and the actual payments to the IRS are? I do. It's "deferred income tax". It doesn't look like the '08 numbers will be out until February, but for '06 the deferred income tax of Exxon was about $21b. This puts their actual tax payments at about $7b and the tax rate on their profits at at a bit above 10% here.

    This more than anything is why our tax code is so bad. If a Ph.D. can't figure out how much a corporation actually pays in taxes, how is the average voter supposed to make informed decisions?
    Reply | Link to Comment
  •  
    Feb 06 08:17 PM
    betaray... you make a good point but only halfway. You need to distinguish between book taxes and cash taxes. Income tax expense is based on accounting (book) taxes. The amount added to deferred taxes roughly equals the timing difference between book taxes and cash taxes actually paid. This difference arises because, for instance, depreciation on capital equipment is faster for cash tax purposes than for book purposes.

    Therefore, because cash tax depreciation is faster, the depreciation amounts are larger each year during the life of the capital asset and income is reduced by more than it would be under book depreciation. Thus, cash taxes are lower than book taxes.

    What you've missed, however, is that while this year's income tax expense will translate into some deferred taxes this year's cash taxes will include deferred taxes accrued in previous years and paid this year. So your analysis that yields a 10% tax rate isn't correct.

    I don't know what Exxon will pay in cash taxes this year. I haven't looked at its financial statements lately. I do know, however, that most all of its income tax expense will translate to cash taxes at some point. So your point really comes down to the difference between tax expense today and the net present value of deferred taxes plus cash tax paid this period. The $21 billion figure you quote is undiscounted; the actual NPV of the deferred amount is much lower.
    Reply | Link to Comment
  •  
    Feb 07 01:44 AM
    Don't forget that Exxon Mobil and other oil and gas companies benefit from amazingly generous tax breaks, credits and discounted federal mineral rights that no other industry even approaches. If you have any doubt that we are a nation addicted to oil, just add up the "oil and gas only" tax breaks in the code. There's even a credit for depletion of the oil in the ground as they pump it out - literally the desired outcome of the company generates a tax break. One would think we were trying to nurture a nascent industry versus the largest corporation in the world.

    And don't even begin to complain about taxes at the pump. They are comparatively low to laughable compared to the rest of the developed world who treats gas consumption as a social burden and invests in novel concepts like mass transportation and fuel efficiency.

    The size of Exxon Mobil is staggering. Their tax bill is not in comparison. The size and scope of tax deductions they enjoy make their tax burden relatively low. The tax code has been setup to treat profit from oil exploration as more sacred.
    Reply | Link to Comment
  •  
    Feb 07 02:54 AM
    Whatever taxes XOM pays, it could definitely pay more. Pull up a 5 year chart of XOM's share price. SP has tripled in 5 years. Shareholders have laughed all the way to the bank.
    Reply | Link to Comment
  •  
    Feb 07 11:41 AM
    The article is obviously biased in favor of XOM. The book or accrued taxes are just an accounting term. The more relevant amount is actual cash taxes paid out. Most tax liability is deferred for ever. Yes, the tax deferred from sometime in the past is due today, but it is more than offset by a much larger deferral from the current periods. The result is as long as the company continues to purchase capital assets it will not pay the deferred taxes. Just pull out XOM's balance sheet for the last 5 years and check out the cash taxes paid. I bet it will be less than $6 billion per year. I also bet that it is lower than the average tax rate paid by the lower 50% of the population!
    Reply | Link to Comment
  •  
    Feb 07 02:11 PM
    Um, net deferred tax liability increased by less than $200 million last year (meaning your points about deferred taxes are moot in relation to Dr. Perry's argument). If you believe XOM shareholders are making obscene profits (and will continue to make such profits), you really ought to buy XOM stock, which you can purchase for next to nothing in brokerage fees.

    A few points to remember:
    1. You are not entitled to anything... cheap gasoline included.
    2. The point of setting up a for-profit business is TO MAKE PROFITS.
    3. Exxon does not set the price of oil.
    4. Exxon's profit margins are 11%, not unreasonable when you compare it to Pfizer, which manages to make 17% on the backs of the sick and dying (who may not have an analogous option to number 4 below).
    4. If you are dissatisfied with the price of gasoline, you may, at any time, take a train, ride a bike, walk, or ride the bus. All of these options will reduce your energy costs.
    Reply | Link to Comment
  •  
    Feb 07 05:59 PM
    4. If you are dissatisfied with the price of gasoline, you may, at any time, take a train, ride a bike, walk, or ride the bus. All of these options will reduce your energy costs.

    I wouldn't say I'm dissatisfied by the price, but the fact you act like we have a choice in the matter shows your ignorance. Maybe it's mine... remind me, which federal agency spends $30+ billion on bike trails. I see Amtrak subsidized with about $1 billion a year. Heck in my city we don't even have sidewalks between neighborhoods, much less the opportunity to work anywhere within walking distance of an affordable home.

    Each dollar poured into the highway system is another dollar wasted on an inefficient transportation system. This is a system which kills 40,000 people a year. It's a system designed to maximize personal consumption at the cost of lives, the environment, and natural resources.

    I don't think Exxon is unjustified in their profits, but this articles premise is, "look at how much they give back to us!" which is, frankly, bullshit.
    Reply | Link to Comment
  •  
    Feb 07 06:21 PM
    Re: Bastiat

    I'll just quote Anwar Bhamla for emphasis"

    "Most tax liability is deferred for ever."
    Reply | Link to Comment
  •  
    Feb 08 10:23 AM
    Great discussion. One fact that seems lost on many here is that XOM doesn't make all of its money here in the good ol' US of A. And they don't make all of their money selling gasoline. In many countries, XOM produces oil and gas and sells it in raw form. So, a very large part of their income is derived in other sovereign countries. The fact that we feel that we can tax money made in other countries has always amazed me.

    Now, for those with their panties and skivvies in a wad about the tax breaks given the industry, do you really think doing away with these will help us get more domestic oil and gas? Those breaks make it economical to drill wells. Without them, the wells will not meet investment return hurdles and simply won't be drilled. I've seen this hundreds of times in analyzing projects and running economics. Either the royalty rates/burdens or the costs or the taxes were too high so the project just wasn't pursued. Now, would you rather give XOM a tax break and they invest in a $4 billion LNG plant/project, or they don't get the tax break, they don't do the project and natural gas prices in the US float up to about $12/MCF?? What about the poor people freezing in New England? Ok, well what about the poor people freezing in places I give a darned about?? What about the CHILLLLDDDRRREEEENNNNN... OMG, I'm starting to sound like a Democrat. time to go.
    Reply | Link to Comment
  •  
    Feb 19 05:27 PM
    I would like to see the photo copy of the check that exxon paid the government. Also can anybody explain why a company that earns so much money needs tax breaks?
    Reply | Link to Comment
  •  
    Feb 26 10:17 PM
    In the wonderful state of Minnesota, between the fed & state taxesthe government makes almost 45 cents per gal. (going up very soon!) that is roughly 5 times as much as the oil company makes per gallon. The govt. does nothing other than takes 41 percent from a law abiding company that provides one of the most wonderful product that improves everyones life including people that are foolish enough to whine that the UNITED STATES isn't fair! For goodness sakes get off your butt & work. This is the greatest country God gave man! If you can't make it here (the country where the "poor" are fat,have tv,cell phones,cars ,beds,roof overhead etc.) I tend to think it's your fault! I don't believe it is my fault, Exxon's, George Bush's or any one else who has worked hard and succeded! Take a good hard look in the mirror - and before any of you write back about that I sound like a spoiled rich kid, guess again ! I have drug my self up from a poor childhood, drugs,alcohol & a number of phsyical problems through faith, hard work & very little luck. I now own my own company, have a wonderful wife of over 13 years (first wife) & have a wonderful, bright, lovely, empathetic seven year old daughter. Good lord this is a wonderful country!! My 5 sibblings also have comperable stories (also all on their first spouse's) one of them has even risen to the ranks of a general in the US military, all of us from the same humble, bleak & trying beginings. Once again, maybe its not the rest of the world that's the problem, quit whinning, put your head down and push forward. God bless you & this great nation.
    Reply | Link to Comment
  •  
    Feb 26 11:13 PM
    Sorry for going off topic at the end of my rant. my basic points are:
    Don't be mad at exxon for making a profit it's what there supposed to do - many people with 401k and other plans benefit from this.

    The government makes many times what Exxon & others do for doing litteraly nothing other than income redistribution.

    Exxon does not set the world crude oil price. Supply & demand does.

    Reduced refinary capacity, ethanol boondoggles (we now import refined gasoline & ethanol from other countries) and the dozens of gasoline formulas are all major components to high gas prices.

    MY final point is that just because Exxon makes a lot of money doesn't mean that no one else can - profit is not a pie, they didn't keep anyone else from making money by taking there piece. We live in a wonderful country full of freedom & opportunity - go out and start your own Exxon!


    Reply | Link to Comment
  •  
    Mar 12 12:39 AM
    How long would it take XOM to move it's corperate headqtrs. to Dubai, or The Grand Caymans, etc. if the Federal Government imposed a windfall profits tax? This is purely political. No rational person can believe that this type taxation policy could be legislated, much less legitimate.
    Reply | Link to Comment
  •  
    Mar 12 10:55 PM
    Interesting but, I believe, flawed analysis. Personally, as you note, I pay taxes on my income not my take home. XOM had income of $404B, that's $404,000,000,000. A quick calc shows that they are only paying about 7.4% tax! Wow, I wish I could have closed door, top-secret meetings with the VP to work out ways to benefit me at the publics expense.

    Additionally, note, that unlike you and me, XOM carries a ton of tax liability around from year to year. Notice the current $22B on their balance sheet. This is because they have a team of tax litigation consultants/lawyers working to find ways to offset these liabilities from year to year. So although their bill might be $30B, they won't pay that much. So, thankfully, I know I will be able to sleep better tonight not worrying about a company that will have to pay an outrageous tax rate of 7.4%!! (This is why the legitimate business press does not go around saying Exxon overpays their taxes. They simply don't pay as much (on a percentage basis) as you and I.

    Enjoy.
    Reply | Link to Comment
  •  
    Mar 14 02:17 PM
    Fred Roth & others - I make less than $30,000 a year. I do without a lot of things I'm sure you people can't live without. I do this so I can invest WISELY through IRA's and Mutual Funds and my 401K with these "corrupt corporations." You people go ahead and depend on "Big Brother" to support you when you are old and gray. I'll rely on those who know how to make money and make it work for me.
    Reply | Link to Comment
  •  
    Mar 15 04:48 PM
    Funny how they still managed to get about 9 billion in profits: www.washingtonpost.com...

    My first reaction to this is that it was written by Exxon Marketing. ( Billion is enough to pay the entire mean earnings to 257,000 families this year. Hmmmmmmm seems like they are really hurting...
    Bob P
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  •  
    Mar 20 01:09 PM
    What people should be concerned with is where those tax dollars are spent...not in the independence of Americans from foreign oil!
    Reply | Link to Comment
  •  
    Mar 25 02:01 PM
    As for the comment that anyone that makes less than $30,000 doesn't pay taxes... that's BS.
    My husband still owes $800 of $1600 in federal takes from 3 years ago when he made $19,000. This year, we made a combined income of $40,000 and have a baby on the way. I won't be surprised if we end up owing again an have to use our "stimulus package" check just to call off the IRS attack dogs. I just don't understand how a federal government can ask so much of us when a family of 3 is going to live in a crappy basement apartment without health insurance. I'm going to try having my baby out of the hospital to save the money to pay uncle same.
    Reply | Link to Comment
  •  
    Apr 01 02:58 PM
    Just my opinion, of course; but, if I were making $40,000, living in a crappy basement apartment and without health insurance, I don't belive I would be having babies.
    Reply | Link to Comment
  •  
    Apr 08 02:00 AM
    I'm with User 171237. If you still owe $800 on a 3 year old tax bill, you definately have problems. Why must I et al, solve your money troubles?
    The IRS attack dogs on $800... I wish my life were so simple.

    Clearly you are young and there is no shame in that. You are where you are supposed to be.

    the world is a bigger picture than your crappy basement apartment with no marketable education and no entreprenurial skills. The upper 5% of earners in this county pay 39% of the tax bill.

    I don't mean to be cruel, however; Which one of us should pay for your family to live? You? The government? Me? Someone else? Which one of us? Does George W owe you a decent living?

    Or should it be the grownup parents of your child?

    Sorry to be blunt, not sorry to be truthful
    Karl
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  •  
    Apr 08 12:12 PM
    I think XOM is entitled to all of the profits they can earn. After all they take the risk in exploration, drilling and transporting crude oil. My questin is why isn't our government working with XOM to develop new refineries in the US to produce more gasoline at a lower cost? One of the reasons we have high gas prices is because the government closed down all of the independent refineries in the US.
    Reply | Link to Comment
  •  
    Apr 21 06:35 PM
    Who really cares what taxes they pay? If they paid 30 billion in taxes and still made 40 billion in profit, does it really matter? what matters is the fact that Americans are getting hosed every time they go to the pump. The government needs to start building more refineries, using the so called tax money to come up with more fuel efficient products, build public transportaion systems and stop raping me every time I want to mow my grass.
    Reply | Link to Comment
  •  
    Apr 24 03:44 PM
    "$800... I wish my life were so simple"

    Not "owed", rather "still owe." Most of the bill was already paid. $800 is what we STILL owe. No one's paying for us; we're taking care of ourselves.

    What kills me is the handouts that lenders, and soon, house-flipping speculators are getting. What ever happened to all that helpful conservative advise I always get: "Pull yourself up by your bootstraps!" HA! That argument only works until the shoe's on the other foot, and then conservative capitalists run to mommy government just as quickly as the populist liberal.

    BTW. Nice comment about "no marketable skills." I have a 4-year degree and currently work full time in web design and marketing. My husband has a 2-year and works with disabled children. But hey, if it makes you feel better to think that we're just poor dumb gas-station workers, you go right ahead. (If I had it to do over again, I'd rather have my $40,000 back than have a degree. Everything I do at work was self-taught anyway.)

    I don't really care if corporate taxes or capital gains goes up or down. So many other thing factor into the national debt that I also can't control so it doesn't matter. Some day, something major will change (flat tax, VAT tax, etc.), until then, I'll just deal with the way the wind blows.

    I just wish the working-poor/lower-mid... could get some friggin' respect! I'm not askin' for a break, or for pity, or for a hand-out (and we've gotten none)... we're gonna do just fine 'cause we know how to make due with less than you poor SOBs up there on the hill with up-side-down mortgages.

    I'm paying a midwife $3000 bucks cash so I can have my kid at home, then I'm gonna' strap that little sucker to my back, head back to the office, and flop a breast out when he squalls. That's the determination and Yankee thrift that built America, and that's what'll build it again when the bankers are done with it.

    Just remember, it wasn't the farmers and workers throwing themselves out of windows on Wall Street during the Great Depression, it was those who were "kings in their own eyes" and couldn't take the humbling.
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