Robert Bryce is the managing editor of Energy Tribune. His latest book is Gusher of Lies: The Dangerous Delusions of "Energy Independence."
Last week, as a friend of mine and I were discussing the energy business, an acquaintance of ours came into the room. When told the topic of discussion, she immediately denounced Exxon Mobil. She'd just heard on the radio that the energy giant had had a record $45.2 billion profit in 2008. She was clearly hoping that we would join in her disgust.
I asked, "So are you suggesting that Exxon should not make money?" I went on, "Would you prefer that Exxon be like AIG, or Citigroup, or one of the big Wall Street outfits that's now asking for a government bailout?" That quieted her down. But I couldn't help myself. I asked, "Did you know that 52 percent of Exxon is owned by mutual funds, index funds, and pension funds?" No. Nor did she know that about 2 million individuals own Exxon stock or that company insiders hold less than 1 percent of the company.
The facts above are not meant to belittle my acquaintance. Rather, it's to illustrate an all-too-common problem in America: Voters have been conditioned to hate the energy business in general and Big Oil in particular. Americans love their gasoline, they love their cars, but they hate the oil companies. While it's unlikely that the general public's attitude toward Big Oil will ever be changed, the public should recognize that Exxon's profits have come along with an enormous tax bill and that those tax payments are helping governments all over the world stay solvent.
According to the company's income statement, the amount of taxes it paid in 2008 was 2.5 times as much as its net profit. The $45.2 billion profit figure makes a snappy headline, but the $116.2 billion in taxes that it paid is relegated to a footnote—if that. Exxon's tax bill breaks down like this: income taxes, $36.5 billion; sales-based taxes, $34.5 billion; "all other" taxes, $45.2 billion. Although the company doesn't mention royalty payments in its income statement, those payments are likely contained within the sales and "all other" categories.
In 2008, Exxon's tax bill averaged about $318 million per day. And it paid those taxes at the very same time that the whiz kids on Wall Street, the geniuses at AIG, and the mavens at Freddie Mac and Fannie Mae, were begging Uncle Sam for multibillion-dollar life preservers in order to prevent financial chaos. Exxon made huge profits—and paid record taxes—at the very same time that the U.S. financial system was undergoing near-fatal convulsions brought about by excessive speculation, uncontained greed, and a basic failure to provide goods and services needed by the overall economy. How many Americans really need credit default swaps or collateralized debt obligations? Now compare that number with the tens of millions of Americans who absolutely must have gasoline every day.
Despite energy's pivotal role in the U.S. economy, Big Oil continues to be maligned and marginalized, particularly when it comes to setting policy. That can be seen by looking at top-level presidential appointees on energy, which yields this fact: The United States has never had a secretary of energy who has actually drilled an oil well, built a nuclear power plant, or dug coal out of the ground.
Jimmy Carter named James Schlesinger—an economist and defense expert with no history in the energy sector—as the nation's first energy secretary. A few years later, Ronald Reagan claimed he was going to dismantle the Department of Energy. His pick for energy secretary: James B. Edwards, a dentist. The last energy secretary, Samuel Bodman, had degrees in chemical engineering, but his professional career has been in investments and chemical production. Barack Obama's choice for the post, Nobel Prize-winning physicist Steven Chu, has years of experience in energy-related issues, including his job as head of the Lawrence Berkeley National Laboratory, but he has never actually been in the energy business.
Compare that history with that of presidential appointees on financial matters. For years, multimillionaire Wall Street bosses have traveled the revolving door between Wall Street and Washington, and their experience is lauded as essential. Consider two recent examples: Robert Rubin and Hank Paulson. Obama's new secretary of the treasury, Timothy Geithner, was president of the New York Federal Reserve. While some could argue that Geithner is not actually from "Wall Street," he has certainly worked in the neighborhood.
Of course, these days Geithner and other top financial advisers are trying to figure out how to get the U.S. economy moving. And one particular area of concern must be falling tax revenues. Consumers have dramatically cut their retail spending, which is reducing sales tax revenue. Motorists are staying home in record numbers. The Federal Highway Administration recently reported that the number of miles traveled on U.S. roads in November 2008 fell by 5.3 percent, the biggest annual decline since the agency began collecting data in 1971. Less driving means less fuel tax revenue.
Those declining tax revenues make the taxes paid by energy companies like Exxon that much more important. Governments, both here in the United States and around the world, are increasingly strapped for cash. They have far more ways to spend money than they do new sources of revenue to pay for that spending.
The punch line is abundantly obvious: Taxpayers should be thankful that Exxon is making record profits because record profits mean huge tax revenues for government. And if that point isn't obvious enough, it should be noted that just two days after Exxon announced its record profits, several news outlets reported that General Motors, which is borrowing $13.4 billion from the federal government in order to stay afloat, is lobbying the feds for another favor. It wants Congress to waive its tax bill. The amount of GM's pending tax bill: $7 billion.