Morning Note: Does Big Oil Deserve a Big Tax Break?

CEOs of Exxon Mobil, Chevron and ConocoPhillips headed to Capitol Hill today to make the case that their companies not only deserve the roughly $2 billion in annual tax breaks that some in the senate would like to repeal, but also that what’s good for them is good for the American people.

In a recent report commissioned by the American Petroleum Institute – the trade group representing the oil and natural gas interests – the industry argues pension funds rely on big oil’s growing profit margins.

The report, published by Sonecon late last month, showed that public pension funds in Michigan, Missouri, Ohio and Pennsylvania derive about 8.6% of their profits from energy company stock holdings. The API plans to release a more comprehensive study this summer – undoubtedly showing returns from oil and natural gas company stock holdings have fueled pension fund profits.

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"During vigorous expansion or deep recession, oil and natural gas investments outperformed other public pension holdings by more than two times," said Kyle Isakower, API vice president of regulatory and economic policy. in a statement. "The oil and natural gas industry supports millions of jobs and a significant portion of our economy, and the retirement benefits of America's teachers, firefighters, and thousands of others with a pension of 401k."

The pension argument is just one case big oil is making to justify their opposition to the bill introduced earlier this week by Senate Democrats to repeal $2 billion in annual tax breaks. The Democrats do not appear to have the votes to get the bill passed currently.

Another key argument: Big oil pays a very big tax bill already. Early this morning, Chevron CEO John Watson told the committee just that, saying the worldwide effective tax for the industry was $158 billion per year. About $86 million of that went to the U.S., Watson said.

That tax number, however, didn't appear to impress members of the finance committee. Committee members have pointed to studies showing companies such as Exxon Mobil pay an average effective corporate tax rate of about 17.6%, rather than the 35% rate many other large corporations currently pay.

Mr. Watson also argued that costs to extract oil are rising, making the tax breaks more necessary. Senators on the finance committee largely rejected that argument, pointing to the recent run-up in oil prices as evidence that top line growth was sufficient to cover any increased costs. Crude oil prices are up nearly 30% in the past year.

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