Middle Class Has a Large Stake in Success of Energy Industry

People love to hate "Big Oil," but the anger is misplaced.

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Pete Sepp is executive vice president of the National Taxpayers Union.

Given campaign-trail news reports lately, many Americans seem increasingly concerned with what their fellow citizens are paying in taxes. Is Mitt Romney paying "enough," given the assets he's amassed? Is Warren Buffett's secretary paying a larger proportion of her income in taxes than her wealthy boss?

Questions like these allow politicians to conjure up perceptions of who should be made to pay more and who should pay less. Not all the assumptions they would have us believe, however, sync with reality.

[Obama Exaggerates Role of Federal Government in Natural Gas Boom.]

Consider the disparity in federal income taxes. Instead of tilting them most harshly against lower-income households, the heaviest burden rests on the shoulders of the top 1 percent of earners who pay 37 percent of the income taxes but account for 17 percent of the Adjusted Gross Income reported on 2009 returns. In fact, the top half pays nearly 98 percent, leaving the bottom half responsible for just over 2 percent of the income taxes. Thus, they are pulling twice the tax load relative to their income load. 

What if other kinds of federal levies—like payroll and excise taxes are brought into the picture? According to a Congressional Budget Office analysis, using a different definition of income from the IRS's, concluded that "in 2007, households in the highest quintile earned 55 percent of before-tax income and paid almost 70 percent of federal taxes; for all other quintiles, the share of federal taxes was less than the share of income."

But the latest campaign rhetoric we're hearing hardly reflects these facts.

[Limiting Natural Gas Exports Sets A Dangerous Precedent.]

The same is often true for corporate stereotypes. The sectors often vilified for high profits (e.g., "Big Oil") aren't necessarily benefiting who you may think. The fact is middle-class Americans have a large stake in our traditional energy industry. Close to half of oil and gas company shares are owned by government and private retirement plans (such as pensions) while private investors account for an additional one fifth of ownership. Corporate executives hold under 3 percent of oil and gas companies' share ownership.

After considering who benefits, we should look at by how much. The profit margin of the oil majors is not as high as many Americans imagine, ranking lower than electronics, soft drink makers, restaurants, savings and loans, and application software companies—among dozens of industry categories when observing how much each sector earns on its dollar. Oil firms, like many others in resource-based lines of business have two huge fixed costs: They are predominantly owned by shareholders and must make payments to their investors, and they must consistently engage in research and infrastructure development in order to ensure that they have sites to continue production. Oil companies, moreover, are continually investing in the United States and expanding their businesses in North America, despite an internationally uncompetitive tax system.

[Rising Foreign Demand Keeps U.S. Gas Prices High.]

The latter topic—how to reform our tax code—may not make for good sound bites among the candidates, but it would sure make for good policy that can benefit all Americans, especially the middle class.

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