This post is an update on my earlier post on Texas Big Corps and State and Local Corporate Income Taxes they pay.
In performing a quick review of SEC filings of large corps with an SEC State Location Code in Texas, I found 44 large Texas Corps with Total Consolidated Core Pretax Income of more than $5 bil each, for the most recent 12 years. My definition of Core Pretax Income excludes large Asset Impairment Charges, such as ones for the Ceiling Test for Oil and Gas Corps, and for Goodwill for companies in all industries.
Included in those 44 Big Texas Corps were a handful of Big Corps, now legally in Switzerland, Ireland, Bermuda, and The Netherlands Antilles, and some previously in The Cayman Islands and Bermuda, all due in large part for income tax avoidance reasons, but with heavy operational control out of Houston. Let me detail these.
Schlumberger, Ltd is incorporated in The Netherlands Antilles and has a SEC location in Texas, and SEC Business Address and Mailing Address, both in Houston, TX. Its external CPA firm is located in Houston.
Transocean, Ltd presently is incorporated in Switzerland, but previously was incorporated in The Cayman Islands. Its external CPA firm is located in Houston.
Weatherford International, Ltd presently is incorporated in Switzerland, but previously was incorporated in Bermuda. It has an SEC location code in Texas, and SEC Business Address and Mailing Address, both in Houston, TX. Its external CPA firm is located in Houston.
Noble Corp presently is incorporated in Switzerland, but previously was incorporated in The Cayman Islands. Its external CPA firm is located in Houston.
Nabors Industries, Ltd is incorporated in Bermuda. Its external CPA firm is located in Houston.
Cooper Industries, plc is presently incorporated in Ireland, but previously was incorporated in Bermuda. Its external CPA firm is located in Houston.
Below here is the effective state and local corporate income tax rates paid, which are computed by dividing the current state and local income tax paid by the consolidated core pretax income, both in total for the past twelve years for each of these 44 Big Texas Corps.
These 44 Big Texas Corps below had a weighted average state corporate effective income tax rate paid of only 1.43%. Texas has no state corporate income tax, but does have a gross margin tax. Texas Big Corps must pay State and Local Corporate Income Taxes to many other US States.
I present these 44 Big Texas Corps below, sorted by Core Pretax Income. And then later, I will add some analysis to this post. Everything is Big in Texas. Thus, it is only right that this ends up being a Big Post, one that is very detailed.
......................................State....................Effective
....................................Income......Core........State
......................................Tax........Pretax.......Tax
......................................Paid.......Income......Rate
.....................................12 Yrs.....12 Yrs......12 Yrs......Industry
....................................(Millions of Dollars)
.1 ExxonMobil................ 4,490....486,408.....0.92%......Oil&Gas
.2 ConocoPhillips........... 3,062....163,228(9).1.88%......Oil&Gas
.3 AT&T..........................4,521(1).147,490.....3.07%
.4 Marathon Oil.................858.......44,849(9)..1.91%.....Oil&Gas
.5 Dell....................................0(2)..37,742....0.00%
.6 Schlumberger, Ltd..........231......31,216(9)..0.74%.....Oil&Gas
.7 Apache............................23......30,343(9)..0.08%.....Oil&Gas
.8 Valero Energy................359......29,225(9).1.23%.......Oil&Gas
.9 Anadarko Petroleum......285......28,132(9)..1.01%......Oil&Gas
10 Kimberly Clark..............445......26,029......1.71%
11 Texas Instruments........105.......24,561.....0.43%
12 Burlington No Santa Fe..527......24,552.....2.15%
13 Halliburton....................168......17,543.....0.96%.......Oil&Gas
14 Spectra Energy...............213......17,481(9)..1.22%.....Oil&Gas
15 Transocean, Ltd.................0......16,288(9)..0.00%....Oil&Gas
16 Sysco.............................795(1)..16,088.....4.94%
17 XTO Energy....................240(3).15,756.....1.52%......Oil&Gas
18 Alcon(7)………………….........0(2).13,978…..0.00%
19 EOG Resources.................53......13,721.....0.39%......Oil&Gas
20 Baker Hughes.................129(3).12,369.....1.04%......Oil&Gas
21 Waste Management........533......11,370.....4.69%
22 Comerica........................210.....10,638......1.97%
23 Energy Future Holdings..293.....10,488(9).2.79%
24 Burlington Resources(4)..122......9,728.....1.25%......Oil&Gas
25 National Oilwell Varco....147.......9,351.....1.57%.......Oil&Gas
26 JC Penney.......................281.......8,619.....3.26%
27 Electronic Data Systs(5)..213.......8,537.....2.50%
28 Noble Corp.........................0.......8,224.....0.00%......Oil&Gas
29 Southwest Airlines...........126.......7,833.....1.61%
30 SuperMedia.....................358.......7,554.....4.74%
31 Torchmark..........................0.......7,553.....0.00%
32 Clear Channel Comm.........175......7,549(9).2.32%
33 Diamond Offshore.................1.......7,519.....0.01%......Oil&Gas
34 Kinder Morgan..................222......6,874(9).3.23%....Oil&Gas
35 Smith International.............49......6,554.....0.75%......Oil&Gas
36 Weatherford Intl, Ltd...........46(3).6,331.....0.73%......Oil&Gas
37 Cooper Industries plc..........77......6,224.....1.24%
38 Noble Energy.......................21......6,193.....0.34%......Oil&Gas
39 Ensco International plc(8).....9......6,097.....0.15%......Oil&Gas
40 BJ Services..........................61(3)..5,893.....1.04%......Oil&Gas
41 CenterPoint Energy(6)........124......5,520.....2.25%
42 Nabors Industries, Ltd.........54......5,511.....0.98%......Oil&Gas
43 Newfield Exploration.............8......5,074(9).0.16%.....Oil&Gas
44 Fluor.................................109......5,058.....2.16%
Total for all 44 Companies.19,743..1,377,291...1.43%
(1) Also includes Current Foreign Income Tax Paid or Payable. Thus, AT&T and Sysco would have lower State Income Tax Paid, as well as lower effective State Income Tax Rates Paid, than are shown above.
(2) Dell and Alcon had no disclosure of State Income Taxes, therefore it was assumed that none were paid.
(3) Includes both Current State Income Tax Paid or Payable and Deferred Income Tax Expense. Thus, XTO Energy, Baker Hughes, Weatherford, and BJ Services would all have lower State Income Tax Paid, as well as even lower effective State Income Tax Rates Paid, than are shown above.
(4) Just includes amounts for the eight years 1998 to 2005.
(5) Just includes amounts for the ten years 1998 to 2007.
(6) Just includes amounts for the ten years 2000 to 2009.
(7) Alcon is incorporated in Switzerland, but with an SEC location code in TX, and both Business Address and Mailing Address in Fort Worth, TX. Its external CPA firm is also located in Fort Worth, TX.
(8) Ensco International, plc is incorporated in England and Wales. Its external CPA firm is located in Dallas, TX.
(9) Excludes large Asset Impairment Charges
Below here isolates the 25 Texas Oil and Gas Big Corps, included in the above 44 Texas Big Corps.
......................................State....................Effective
....................................Income......Core........State
......................................Tax........Pretax.......Tax.........Texas
......................................Paid.......Income......Rate........Metro
.....................................12 Yrs.....12 Yrs......12 Yrs.......Area
....................................(Millions of Dollars)
.1 ExxonMobil............... 4,490....486,408.....0.92%........Dallas*
.2 ConocoPhillips........... 3,062....163,228.....1.88%......Houston
.3 Marathon Oil..................858......44,849.....1.91%.....Houston
.4 Schlumberger.................231......31,216.....0.74%.....Houston
.5 Apache............................23......30,343.....0.08%......Houston
.6 Valero Energy................359......29,225.....1.23%....San Antonio
.7 Anadarko Petroleum......285......28,132.....1.01%......Houston
.8 Halliburton....................168......17,543.....0.96%......Houston
.9 Spectra Energy...............213......17,481.....1.22%......Houston
10 Transocean.......................0......16,288.....0.00%.....Houston
11 XTO Energy....................240.....15,756.....1.52%.......Dallas
12 EOG Resources.................53.....13,721.....0.39%......Houston
13 Baker Hughes..................129.....12,369.....1.04%......Houston
14 Burlington Resources......122......9,728.....1.25%......Houston
15 National Oilwell Varco....147.......9,351.....1.57%......Houston
16 Noble Corp.........................0.......8,224.....0.00%.....Houston
17 Diamond Offshore...............1.......7,519.....0.01%......Houston
18 Kinder Morgan................222.......6,874.....3.23%......Houston
19 Smith International...........49.......6,554.....0.75%......Houston
20 Weatherford......................46.......6,331.....0.73%......Houston
21 Noble Energy.....................21.......6,193.....0.34%......Houston
22 Ensco International.............9.......6,097.....0.15%.......Dallas
23 BJ Services.........................61.......5,893.....1.04%......Houston
24 Nabors Industries, Ltd.......54........5,511.....0.98%......Houston
25 Newfield Exploration...........8.......5,074.....0.16%......Houston
Total for all 25 Companies.10,851...989,908....1.10%
* However, most ExxonMobil employees are located in Houston.
In the most recent year, these 25 Texas Big Oil and Gas Corps had an incredibly low effective state and local corporate income tax rate paid of 0.29%. It seems to me that this might be a very fertile area for many US States to add to their severely stressed financial coffers.
The above 25 Texas Big Oil and Gas Corps generated Core Pretax Profits for the most recent 12 years of $989,908,000,000, which represents a massive 72% of all 44 Texas Big Corps profits of $1,377,291,000,000 (yeah, that's more than $1.37 trillion). I have to ask.....so the country gives the Oil Industry all of these very lucrative tax incentives when these Oil and Gas companies make Pretax profits like the above?
And the above 25 Texas Big Oil and Gas Corps doesn't include foreign-owned giant Big Oil Corps BP and Dutch Shell, which have massive operations in Houston.
Now let me focus on the Texas Medium-sized Corps, which are a bit smaller than the above 44 Very Big Texas Corps.
Below here is a listing of the 36 Texas Mid-sized Corps with Total Core Pretax Income for the most recent 6 years of at least $1.5 bil each, but which had Total Core Pretax Income for the most recent 12 years of less than $5 bil, and thus weren’t included in the above list of the 44 most profitable, Very Big Texas Corps.
..........................................Most Recent Six Years
.........................................State&Local....(PTI).........Effective
.........................................Corporate........Core......State&Local
.......State............................Income.........Pretax......Tax Rate
....Corporations..................Tax Paid.......Income........Paid
.............................................(Millions of Dollars)
Texas with PTI > $2 bil for past 6 Years
Tesoro....................................203...........3,810.........5.33%
Plains Exploration&Production.65...........3,603.........1.80%
Temple Inland...........................60(3)......3,449.........1.74%
Affiliated Computer Services.....89...........3,442.........2.59%
El Paso........................................0...........3,197.........0.00%
Dr. Pepper Snapple Group........138...........3,154.........4.38%
Cameron International..............17...........3,067.........0.55%
Patterson UTI Energy................56...........2,937.........1.91%
Southwestern Energy..................0...........2,901.........0.00%
Rowan Companies.......................4...........2,777.........0.14%
HCC Insurance Holdings............24...........2,555.........0.94%
McDermott................................61...........2,517.........2.42%
Lyondell Chemical.....................13...........2,258.........0.58%
Pride International.....................0(2).......2,240.........0.00%
GameStop.................................52...........2,177..........2.39%
Ultra Petroleum..........................1...........2,172..........0.05%
Dean Foods...............................61...........2,116..........2.88%
Celanese...................................56(1).......2,046..........2.74%
FMC Technologies.....................12...........2,043..........0.59%
TX Total for all 19 Corps........912.........52,461..........1.74%
Texas with PTI from $1.5-$2.0 bil for past 6 Years
RadioShack...............................85...........1,971.........4.31%
Frontier Oil...............................77...........1,962.........3.92%
Helix Energy Solutions Group.....0(2).......1,948.........0.00%
Americredit..............................48(1).......1,921.........2.50%
BMC Software............................28...........1,905.........1.47%
Flowserve.................................14...........1,890.........0.74%
Denbury Resources...................20...........1,821.........1.10%
Cabot Oil&Gas...........................18...........1,765.........1.02%
EXCO Resources........................(1)..........1,761........(0.06)%
Whole Foods Market................176..........1,752.........10.05%
KBR.........................................(16)..........1,710........(0.94)%
Global Santa Fe(2004-06)(4).......2...........1,702.........0.12%
Commercial Metals...................61...........1,701.........3.59%
Alliance Data Systems...............36...........1,687.........2.13%
Atmos Energy...........................44...........1,637.........2.69%
Grant Prideco.............................7(1).......1,583.........0.44%
Pioneer Natural Resources......(10)..........1,538.......(0.65)%
TX Total for 17 Corps...........589.........30,254.........1.95%
(1) Includes both Current State Income Tax Expense and Deferred State Income Tax Expense.
(2) No mention of any State Income Taxes, therefore I assumed none were paid.
(3) Also includes Foreign Income Tax Paid.
(4) Global Santa Fe was a Cayman Islands Corp, but with Houston SEC Business and Mailing Addresses. It had a Houston CPA firm. It was acquired by Transocean, Ltd.
The above list of 36 Texas Medium-sized Corps include 22 in the Oil and Gas Related Industries. The Houston metro area is home to 16 of these 22 companies. Clearly, Texas has prospered from the Big Oil industry, while the rest of the country has suffered in the 2000s Lost Decade.
Let me give below some perspectives on just how outrageous all of these Texas profits are, driven by Texas Big Oil and Gas Corps. These numbers are all in total for the most recent 12 years.
What this detailed information below clearly shows is an incredible swing in profits in the past decade from US Non-Big Oil and Gas Corps all throughout the country to Texas Big Oil and Gas Corps.
This unfortunate gigantic swing in profits has just devastated the US economy in the past decade, and was a major cause of the high US unemployment and underemployment rates in the most recent three years. US Non-Oil and Gas Big Corps, and also many smaller businesses, needed to protect their profits by doing something to offset these growing nosebleed energy costs. They elected to drastically cut US employee costs, and also to offshore jobs, and to expand operations overseas, in order to pare both employee costs and income taxes to counter the onslaught of these continually growing, exceedingly high energy costs.
First, let’s visit the State of California, and perhaps even go see my daughter who lives there.
Just think about how huge California is. And think of all the stellar huge technology companies there, with Total Pretax Profits for the past dozen years as follows:
.....Intel $102 bil
.....Cisco Systems $72 bil
.....Oracle $66 bil
.....Hewlett Packard $66 bil
.....Apple $51 bil
And then there's Wells Fargo with $109 bil of Pretax Profits, and Disney with $48 bil.
And on top of that, there are California's two Big Oil Corps, Chevron, with profits of a massive $212 bil, and Occidental Petroleum with profits of another $55 bil. Yeah, these two California Big Oil Corps comprised a hefty 22% of the Total Profit for California's 42 Big Corps. And Chevron’s profit for the past 12 years was nearly double that of the California company with the second highest profit, Wells Fargo.
Whew, you have to be impressed with the long-term operating performance of all of these California Big Corps.
But guess what? Total Pretax Profits for the past 12 years of California's 42 Big Corps of $1,193,757,000,000 is a gigantic $184 bil short of the total Pretax Profits of Texas' 44 Big Corps.
Second, let’s stay out West, and I mean the huge West, and even creeping into parts of the Midwest. And by huge West, I mean all US States West of the Mississippi River, other than California…..22 States in all.
Here's the related information for all 64 Big Corps, in the 22 States, west of the Mississippi River, with Core Pretax Profits above $5 bil each for the past 12 years.
..........................# of.........Pretax
..........................Big..........Income
..........................Corps......12 Years
.......................................(mils of $s)
Washington..........9..........324,375
Minnesota…….....14……....309,056
Arkansas………......4……....208,554
Nebraska………......4……....152,159
Missouri…………....8……....101,428
Oklahoma*………...4………...56,412
Arizona.................4...........43,768
Oregon..................3...........31,782
Louisiana………......3………..30,142
Colorado……….......4………..29,940
Iowa……………........2………..16,522
Nevada..................2..........10,768
Idaho.....................1............8,457
Kansas…………........1………....7,988
Utah......................1.............5,345
Alaska...................0....................0
Hawaii...................0....................0
Montana................0....................0
New Mexico...........0....................0
North Dakota……....0……………......0
South Dakota……....0……………......0
Wyoming...............0....................0
Total all 22 States..64.....1,336,696
* All 4 Oklahoma Big Corps are Oil and Gas companies.
Yeah, Total Texas Big Corp Core Pretax Profits for the past 12 years of $1,377,291,000,000 exceed those of the Big Corps in these 22 States, West of the Mississippi River by $41 bil.
Third, let’s move East of the Mississippi River, to the Midwest States.
Here's the related information for all 59 Big Corps, in the 5 Midwest States, west of the Mississippi River, with Core Pretax Profits above $5 bil each for the past 12 years. And heck, I’ll even add the 14 Big Corps in Minnesota to the mix here….Gophers are pretty cool, they like being included anywhere they can.
Here's a summary of the Big Corps, with Total Core Pretax Profits of greater than $5 bil each over the past 12 years, headquartered in the 6 large States in America's Midwest. A large portion of these profits are from Manufacturing Corps, which have been particularly severely harmed by the windfall profits of Texas Big Oil and Gas Corps.
........................# of........Pretax
........................Big.........Income
........................Corps.....12 Years
...................................(mils of $s)
Illinois...............24........491,682
Ohio...................17........321,950
Minnesota..........14........309,056
Michigan..............7........106,479
Indiana................6........100,120
Wisconsin............5..........48,731
Total all 6 States..73....1,378,018
Yeah, Total Texas Big Corp Pretax Profits for the past 12 years of $1,377,291,000,000 almost precisely matches those of the Big Corps in these large 6 Midwest US States.
Fourth, let’s head to the Southeast US, for some better weather, and perhaps even visit my other daughter, who lives in Florida.
Here's a summary of the 61 Big Corps, with Total Core Pretax Profits of greater than $5 bil each over the past 12 years, headquartered in the 12 states in America's Southeast. A good portion of these profits are from Manufacturing Corps and Retailers, which have both been particularly severely harmed by the windfall profits of Texas Big Oil and Gas Corps. I added Arkansas and Louisiana to the mix here, even though they were already included in my earlier West of the Mississippi River profit numbers. That way, we’ll have all of the SEC States included here, and a good chunk of the ACC States, as well. Who's addicted to Sports? Also, just about everybody wants a WalMart included, and there is no better time one can have than time spent in New Orleans.
.............................# of..........Pretax
..............................Big..........Income
.............................Corps.......12 Years
...........................................(mils of $s)
North Carolina.........13.........395,255
Georgia....................10.........323,370
Arkansas....................4.........208,554
Virginia……………......10……....156,216
Florida......................7............81,018
Tennessee.................5............61,981
Kentucky...................5...........34,562
Louisiana..................3............30,142
Alabama...................3............21,876
South Carolina..........1..............5,082
Mississippi................0.....................0
West Virginia............0.....................0
Total all 12 States.....61......1,318,056
Yeah, Total Texas Big Corp Pretax Profits for the past 12 years of $1,377,291,000,000 exceed those earned by the Big Corps in these 12 Southeast US States by $59 bil.
And fifth, and last, let’s tour the Northeast US by train, perhaps with VP Joe Biden, from DC all the way up to Boston.
Here's a summary of the 65 Big Corps, with Total Core Pretax Profits of greater than $5 bil each over the past 12 years, headquartered in the 11 States in America's Extended Northeast area, excluding the State of New York, but including down to Washington DC. A huge portion of these profits are from Manufacturing Corps, which have been particularly severely harmed economically by the windfall profits of Texas Big Oil and Gas Corps.
.............................# of..........Pretax
..............................Big..........Income
.............................Corps.......12 Years
...........................................(mils of $s)
New Jersey.............18..........534,077
Connecticut..............9..........354,085
Pennsylvania..........17..........209,556
Massachusetts........10..........109,682
Maryland.................6.............62,374
Delaware..................2.............51,833
Rhode Island............2.............35,715
Washington DC.........1.............11,749
Maine.......................0.....................0
New Hampshire........0.....................0
Vermont...................0.....................0
Total all 11 States....65.......1,369,071
Yeah, Total Texas Big Corp Pretax Profits for the past 12 years of $1,377,291,000,000 exceed those earned by the Big Corps in these 11 Northeast Area US States by $8 bil.
Let me now focus on the Income Shift among US States in the past decade. Here's some information on the Total Core Pretax Income of the Big Corps in the country as a whole, in the US Big Oil and Gas Industry, and in the biggest US States:
..........................................................Two Years...........Percentage
......................................# of........Core Pretax Income.....Increase
...................................Big Corps..2008-09.....1998-99..(Decrease)
………………………………….................(Billions of dollars)
Texas Big Oil…………….......25………...265.0……….36.3……....631%
All US Big Oil……………......35………...373.7……….46.0……....712%
All US Corps but Big Oil..339……...1,366.5……...938.7………..46%
Individual States without
…Big Oil and just Corps
…Continuing all 12 years
…....California……………....30……......200.1……….97.4………105%
…....Texas………………….....16……….....80.6……….48.0………..68%
…....New Jersey……………..15……….....97.6……….62.9………..55%
…....Illinois…………………...19………......79.3………56.3………..41%
…....Ohio………………….......16………......49.5………37.6………..31%
…....New York……………....33…….......175.9…….194.5………..(10)%
Yeah, those above numbers are correct.....the increase in profits in the past decade in the entire US Big Oil and Gas Industry of 712% is more than 15 times the increase in profits in the past decade of the rest of the very best US Big Corps of 46%....the only Big Corps included are ones which earned more than $5 bil in the past 12 years. Whoa!....US Big Oil and Gas ruled in the 2000s decade.....and still does.
And looking at individual US States with the highest number of Non-Big Oil Big Corps, which continued for the entire past 12 year period, California tops the list in earnings growth (up 105)%, and New York was at the bottom (down 10%). I didn’t include it here, but Minnesota’s earnings increase in the past decade even topped California, driven by wholesale exceptional operating performance by many of Minnesota's Big Corps. But on the downside, Health Insurance Giant United Health Group had a massive profit increase in the decade, which unfortunately was earned on the backs of US individuals and US businesses.
Well, that US Big Oil 712% monstrous profit increase in the past decade certainly has moderated in 2010? Believe it or not, it hasn't. It's been full speed ahead for US Big Oil profits in 2010. Just check out the following Core Pretax Income increases for the largest of US Big Oil for the nine months ended September 30, 2010.
.......................................Core Pretax Income
..............................Nine Months Ended September 30
..................................2010...........2009....% Increase
ExxonMobil............$37.6 bil.....$24.6 bil........+53%
Chevron..................$23.3 bil.....$12.7 bil........+83%
ConocoPhillips........$15.5 bil.......$6.8 bil.......+126%
Oxy Petroleum..........$5.5 bil.......$3.1 bil........+78%
Apache.....................$3.9 bil.......$2.0 bil.........+95%
Marathon Oil.............$3.9 bil.......$2.5 bil.........+54%
Hess..........................$3.0 bil.......$0.8 bil.......+264%
Devon Energy............$2.9 bil.......$1.0 bil.......+185%
Total of all 8.............$95.6 bil.....$53.6 bil........+78%
It is pretty clear to me that one of the main reasons that the US unemployment and US underemployment rates are so high, and that median wages are so low, is the severe widespread cost pressure placed on other US businesses by US Big Oil and Gas companies. And then the personal financial status, as well as the standard of living, of US citizens have also dramatically deteriorated due to US Big Oil and Gas company unnecessary cost pressure placed on US individuals. Also, Federal, State and Local Governmental entities have all been seriously harmed by the severe inappropriate cost pressure applied by US Big Oil and Gas companies.
What happened in the past 12 years was an unfortunate, massive transfer of wealth from US individuals, from US non-Oil and Gas businesses, and from all US government entities.....federal, state, and local.....to the bottom-line profits of US Big Oil and Gas, mostly headquartered in Texas. The resultant structural problems with the US economy will not be fixed until the out-sized profits of US Big Oil and Gas Corps are properly dealt with in wise, creative ways by the US Government.
When energy costs are so high, and also increasing so much, as well as being so volatile, it is very difficult for someone to start a business. The risk/reward of taking a chance and starting a new business in this sky-high energy cost environment is dramatically tilted toward the risk side of the equation right now, whereas over a decade ago, it was clearly tilted toward the reward side. I think the US government should institute economic initiatives to make the risk/reward of starting a new business a lot more attractive…..that’s where the jobs will come from…..and the key are initiatives to reduce the after-tax energy cost of starting a new business, or of expanding an existing business.
Clearly, for US businesses to be much more competitive, what is needed here is a whole-scale, revolutionary effort to reduce energy costs for all US businesses. To accomplish this, I think there should be incredibly attractive tax incentives for US businesses to do just that. Businesses react to profits. If the US government adopts tax incentives for energy initiatives that will result in higher US business profits, watch how quickly and extensively US businesses will react to them.
And the Obama Administration’s recent proposal for a very healthy Energy Tax Credit for all businesses that do Commercial Building Green Energy Retrofit Upgrades is a Stroke of Genius, particularly if it is paid for by closing some of the many Big Oil Tax Loopholes.
Let me focus a bit on Closing Big Oil Tax Loopholes. There are so many of these, but let me address just five of them here.
First, Percentage Depletion permits Big Oil companies to deduct much more than the actual total costs they incur. This is flat out wrong, and it should be stopped. It’s like saying, OK, if you spend $100 on something, the IRS is going to let you deduct $150, for spending $100. Pure craziness.
Second, LIFO Inventory permits Big Oil companies to value their Oil Inventory at oil prices of decades ago. At Dec 31, 2009, Exxon Mobil recorded it Oil Inventory on its balance sheet at an incredible $17.1 bil lower than the current cost of this Oil Inventory. The other side of this is that Exxon Mobil’s cumulative Cost of Goods Sold Expense income tax deductions were $17.1 bil more than they would have been if they were based on their actual Oil Inventory costs. This is also crazy, and as oil prices move up more, this $17.1 bil taxable income shelter tax deduction keeps growing in lock step.
Third, Big Oil Corps received a huge annual Domestic Production Activity Tax Deduction, when at the same time, they were applying all of this Energy Cost pressure on US Manufacturers, which ended up reducing these Manufacturing Companies Domestic Production Activity Tax Deduction….that’s also just crazy.
Fourth, Big Oil Corps are permitted to take, on a permanent basis, a 100% first-year federal income tax deduction for the substantial Intangible Drilling Costs they incur. Because of the December 2010 Tax Legislation, in 2011, all businesses can deduct 100% of their first-year equipment cost incurred. All businesses would love to have this 100% tax expensing of equipment made permanent. It is not going to happen, but yet it has happened for Intangible Drilling Costs of Big Oil Corps. This is incredibly unfair to single out one industry for such a massively lucrative tax incentive.
And fifth, it’s what I call “Closing the Big Oil Corps’ Enormous GAP between their US Income Mix and their US Revenue Mix”.
Let me address this latter one by focusing on four of the largest Big Oil companies, which operate heavily in the US: Exxon Mobil, Chevron, ConocoPhillips, and foreign-owned BP. All of this information is derived from data included in the footnotes of the SEC annual report filings of these companies.
Just looking at the most recent three years, these four Big Oil Companies had US Pretax Profits Mix (i.e. US Pretax Income as a Percentage of their Worldwide Pretax Income), which were dramatically and consistently lower than their respective US Revenues Mix (i.e. US Revenues as a Percentage of their Worldwide Revenues), as follows:
2007
Exxon Mobil………..19% US Profit Mix..........31% US Revenue Mix
BP…………………......19% US Profit Mix..........36% US Revenue Mix
Chevron……………..24% US Profit Mix..........44% US Revenue Mix
ConocoPhillips……60% US Profit Mix..........70% US Revenue Mix
2008
Exxon Mobil………..12% US Profit Mix..........30% US Revenue Mix
BP…………………......26% US Profit Mix..........34% US Revenue Mix
Chevron……………..25% US Profit Mix..........44% US Revenue Mix
ConocoPhillips……46% US Profit Mix..........69% US Revenue Mix
2009
Exxon Mobil………. 7% US Profit Mix..........30% US Revenue Mix
BP………………….....12% US Profit Mix..........35% US Revenue Mix
Chevron…………….. 7% US Profit Mix..........43% US Revenue Mix
ConcocoPhillips….24% US Profit Mix..........65% US Revenue Mix
And then let me show the Enormous GAP between the US Income Mix and the US Revenue Mix for the most recent year 2009:
........................2009.................2009..............2009
....................US Profit Mix...US Revenue Mix.....GAP
Exxon Mobil.........7%..................30%................23%
BP.......................12%...................35%................23%
Chevron................7%..................43%................36%
ConocoPhillips....24%..................65%................41%
But it's not just the above gigantic Big Oil Corps that have this Enormous GAP. Let me show this Enormous GAP for the most recent three years (2007-2009) for some of the many US Big Oil and Gas Corps, other than the top three giants Exxon Mobil, Chevron and ConocoPhillips.
..................................Three Years 2007 through 2009.....
..............................US Profit Mix...US Revenue Mix.....GAP
Hess...............................(12)%...............81%................93%
Nabor Industries, Ltd*......7%................60%................53%
Murphy Oil.......................23%...............75%................52%
Marathon Oil....................43%...............90%................47%
Noble Energy...................22%................56%................34%
Apache.............................14%...............40%................26%
Weatherford Intl, Ltd**....17%...............32%................15%
Occidental Petroleum.......51%...............63%................12%
Anadarko Petroleum........70%...............82%................12%
* Bermuda Corp
** Swiss Corp; previously, a Bermuda Corp
And it's just not an Enormous GAP between the US Income Mix and the US Revenue Mix. Here's the Huge GAP between the US Income Mix and the US Total Assets Invested Mix for the 3 US Big Oil Corps for the most recent year 2009:
..........................2009.................2009.................2009
....................US Profit Mix..US Total Assets Mix.....GAP
Exxon Mobil.........7%...................27%...................20%
Chevron...............7%....................33%...................26%
ConocoPhillips....24%...................43%...................19%
And here's the Huge GAP between the US Income Mix and the US Total Assets Invested Mix for some of the many US Big Oil Corps, other than the Big 3, Exxon Mobil, Chevron and ConocoPhillips, for the most recent three years 2007-2009:
.....................................Three Years 2007 through 2009.....
.................................US Profit Mix...US Asset Mix........GAP
Noble Energy....................22%...............74%................52%
Nabor Industries, Ltd.........7%................55%................48%
Hess................................(12)%...............31%................43%
Apache.............................14%................46%................32%
Anadarko Petroleum........70%................93%................23%
Smith, Intl........................42%................64%................22%
Weatherford Intl, Ltd........17%................38%................21%
Occidental Petroleum.......51%................69%................18%
Ensco Intl, plc..................28%................44%................16%
Baker Hughes...................32%................46%................14%
National Oilwell Varco.....50%................60%................10%
There is something seriously wrong with this enormous GAP, which permits Big Oil companies to avoid incredibly monstrous amounts of US income taxes. Big Oil companies should not be permitted to report taxable income in the US based on this huge GAP, which makes no economic sense. No doubt, Big Oil companies are now being permitted to allocate their worldwide costs, and probably even some worldwide revenues, between the US and foreign in an unreasonable manner. The US Government should enact wise legislation to close the flexibility Big Oil companies now have to create this Enormous GAP, that permits them to avoid substantial amounts of US income taxes.
When the US Government closes this Enormous GAP, many US States will also derive substantial benefits to their financial coffers, due to the higher corporate US State Income Tax Receipts from the increases in US State Taxable Income that Big Oil Corps will be required to report.
Well, just how huge of income tax avoidance am I talking about here?
Let me first lay out the largest of the US Big Corps in Core Pretax Income for the most recent 12 years:
#1..Exxon Mobil..........$486 bil
#2..GE.........................$236 bil
#3..Chevron................$212 bil
#4..Microsoft..............$192 bil
#5..Walmart................$179 bil
#6..Bank of America....$178 bil
#7..ConocoPhillips......$163 bil
Yeah, that's right, Big Oil is #1, #3, and #7. But more to the point, these three Big Oil Corps, with Total Core Pretax Income of $861 bil for the most recent 12 years, comprise 52.3% of the total Core Pretax Income of these top 7 largest US Big Corps.
What about the top profit rankings of more recent vintage?
Here's the largest of the US Big Corps in Core Pretax Income for the most recent 6 years:
#1..Exxon Mobil..........$360 bil
#2..Chevron................$172 bil
#3..ConocoPhillips......$142 bil
#4..GE.........................$127 bil
#5..Microsoft..............$124 bil
#6..Walmart................$116 bil
#7..Bank of America....$107 bil
It's still the same top 7.....it's just that Big Oil clearly rules the roost, with #1, #2, and #3 on the profit list. These three Big Oil Corps, with Total Core Pretax Income of $674 bil for the most recent 6 years, comprise 58.7% of the total Core Pretax Income of these top 7 largest US Big Corps.
The question that I have to ask.....Is this where we want to be as a country when absolutely great, giant companies like GE, Microsoft and Walmart are substantially below each of the top 3 Big Oil companies in Total Core Pretax Earnings of the most recent 6 years?
OK, let's go even more recent.
Here's the largest of the US Big Corps in Core Pretax Income for the most recent 3 years (2007-2009):
#1..Exxon Mobil..........$190 bil
#2..Chevron..................$94 bil
#3..ConocoPhillips........$76 bil
#4..Microsoft................$69 bil
#5..Walmart..................$63 bil
#6..GE...........................$58 bil
#7..AT&T......................$58 bil
With the financial crisis, Bank of America got replaced by AT&T on the top 7 profit list. Well, Big Oil still clearly rules the roost, repeating again as #1, #2, and #3 on the profit list. These three Big Oil Corps, with Total Core Pretax Income of $360 bil for the most recent 3 years, comprise 59.2% of the total Core Pretax Income of these top 7 largest US Big Corps.
And I think it's pretty telling to analyze the #8 through #30 on the Total Core Pretax Income list for the most recent 3 years (2007-2009):
.#8..IBM...........................$49 bil
.#9..JNJ............................$48 bil
#10..Procter & Gamble.....$44 bil
#11..Verizon.....................$42 bil
#12..JPMorgan Chase.......$42 bil
#13..Goldman Sachs.........$40 bil
#14..Apple.......................$40 bil
#15..Berkshire Hathaway.$39 bil
#16..Wells Fargo..............$33 bil
#17..Pfizer.......................$33 bil
#18..Hewlett-Packard......$31 bil
#19..Bank of America.......$30 bil
#20..Merck......................$29 bil
#21..Phillip Morris, Intl....$28 bil
#22..Cisco Systems..........$27 bil
#23..Coca-Cola.................$26 bil
#24..Oxy Petroleum.........$25 bil
#25..Oracle.......................$24 bil
#26..PepsiCo.....................$23 bil
#27..Intel.........................$23 bil
#28..Disney.......................$21 bil
#29..Google......................$20 bil
#30..United Technologies.$19 bil
I also have to ask this question.....Is this where we want to be as a country when absolutely great, giant, global companies like GE, Microsoft, IBM, JNJ, Procter & Gamble, Apple, Pfizer, Hewlett-Packard, Merck, Cisco Systems, Coca-Cola, Oracle, PepsiCo, Intel, Disney, Google, and United Technologies are substantially below each of the top 3 Big Oil companies in Total Core Pretax Earnings for the most recent 3 years?
And it's not just the top 3 Big Oil Corps ranked #1, #2 and #3. There are another dozen Big Oil and Gas Corps in the Top 100 in Core Pretax Income for the most recent three years (2007-2009):
#24..Occidental Petroleum.$25 bil
#31..Marathon Oil...............$18 bil
#35..Schlumberger.............$17 bil
#46..Apache.......................$14 bil
#53..Transocean.................$12 bil
#57..Anadarko Petroleum..$12 bil
#58..Devon Energy.............$11 bil
#61..Valero Energy.............$11 bil
#66..Hess............................$10 bil
#79..Halliburton..................$9 bil
#83..XTO Energy..................$9 bil
#88..Chesapeake Energy.......$8 bil
Man, after keying in all of these Oil and Gas companies, my face and hands are feeling oily.
OK, let's get really close to real time. Here are the Core Pretax Income percentage increases for the 3 Big US Oil Corps for 2010 over 2009:
...Exxon Mobil.........+52%
...Chevron...............+73%
...ConocoPhillips....+106%
Is US Big Business now at least on the path to somewhat resembling Saudi Arabia? Let me show you the math.
The 35 Oil and Gas Big Corps generated Core Pretax Income of $373.7 bil for the two years 2008-09, which was a 712% increase from a decade earlier. The 339 Non-Oil and Gas Big Corps generated Core Pretax Income of $1,366.5 bil for the two years 2008-09, which was only a 46% increase from a decade earlier.
If you project out the Core Pretax Income a decade from now, for the two years 2018-19, using the same growth percentages of the past decade, here are the results:
.....35 Oil and Gas Big Corps..............$3,034 bil
....339 Non-Oil and Gas Big Corps.....$1,995 bil
And with the 2010 monstrous actual earnings growth rate for the Oil and Gas Big Corps, the US is clearly on the way to these results. What kind of country will the US be if these comparative Projected Core Pretax Income numbers become a reality in a decade from now, where the 35 most profitable US Big Oil Corps generate Core Pretax Earnings for the two years 2018-19 of $3.0 trillion, which exceeds by 52%, that of the 339 most profitable US Non-Big Oil Corps of $2.0 trillion?
.....Massive poverty
.....Massive unemployment
.....Massive underemployment
.....Paltry wages for those few working
.....Almost nonexistent middle class
.....Monumental US National Debt
.....Incredible wealth for the very few at the top
This result would be something similar to what you had now in Egypt, before the citizens' rebellion. And I think you also will have US citizens, particularly college students, recent college graduates, and the long-term unemployed, taking to the Streets in mass, just like they did in Egypt. But it will happen much sooner than a decade from now. And the peaceful target of protest will more likely be the Big US Oil and Gas Corp Offices all across the country, rather than the US government. However I do think that any members of US Congress, all across the country, who are hard core, ardent supporters of Big Oil, will also be peaceful targets of protesters in mass.
To show just how both awesomely powerful and incredibly deceptive US Big Oil is, US Big Oil, and its lobbyists, even convinced the FASB that in both its Audited Income Statements and in its tax footnotes in its annual reports filed with the SEC, that it can prominently call gas taxes, paid by consumers filling up at the pump, taxes that the Big Oil companies paid to the Government, to give the false impression that US Big Oil is already paying a lot of taxes to the US and State Governments. Yeah, that's right, US Big Oil calls gas taxes it collects from its customers at the pump and turns over to the Government, taxes Big Oil has paid to the Government. Gas consumers have to be outraged by this. Since Big Oil claims that it is their gas taxes being paid, I think gas consumers, who actually paid the gas tax, should be asking for tax refunds from the US Big Oil companies. When US Big Oil can control the FASB like this, we have a real problem.
Now let's go back to the Total Core Pretax Income of the 3 US Big Oil Corps in the most recent 12 years of $861 bil. When you add in BP, it will take this $861 bil way above $1 trillion. And then when you add Royal Dutch Shell, the total Big Oil Core Pretax Income number should go way above $1.5 trillion.
So yeah, we are talking about huge money here. Just to illustrate, let's say the US Government closes just 10% of this Enormous GAP. Thus, for just these 5 Big Oil Corps, for the past 12 years, that would result in higher Total US Pretax Income of 10% X say $1.5 trillion, or $150 bil, which multiplied by the US federal income tax rate of 35% = $52.5 bil.
When you think about it, due to the severe energy cost pressure Big Oil placed on US businesses and US individuals, Big Oil was a major contributor to the Lost Decade of the 2000s. And Big Oil Corps' bottom-line coffers benefited dramatically while this devastation to the US economy was occurring in the 2000s Lost Decade. Thus, it is only fair for Big Oil, and for the entire oil related industry for that matter, to now step up to the plate and do its part and pay for at least some of the tab of the Obama Administration’s wise Energy Tax Credit proposal, that could help turn the 2000s Lost Decade into a 2010s Truly Job-Full Economic Recovery Decade.
The Obama Administration's Energy Tax Credit Proposal is a dozen-fer:
.....higher US real GDP growth
.....much lower US unemployment
.....lower US underemployment
.....higher US median wages
.....lower portion of take-home pay needed to fund energy costs
.....higher after-tax corporate profits for more than 95% of US businesses
.....significant reduction in the US deficit
.....much better State government financial coffers
.....uplifting of the very troubled US construction industry
.....uplifting of the very troubled US Commercial Real Estate industry
.....more competitive US firms
.....and a huge step toward US becoming energy independent
I'll make a prediction. If the Obama Administration's Energy Tax Credit Proposal is sufficiently robust enough, makes this Energy Tax Credit immediately refundable to both help troubled businesses and to provide highly-charged, front-end incentives to small and start-up businesses, and also wisely adds to existing accelerated tax depreciation deductions, thus also making it robust enough, then the job creation and real GDP growth resulting from it over the next two years will surpass by a wide margin the job creation and real GDP growth resulting from the Tax Legislation struck in December 2010. And the December 2010 Tax Legislation, in the aggregate, will have a very positive effect on real GDP growth, and a somewhat positive effect on job creation.
If this Energy Tax Credit is properly designed and gets passed quickly, just watch what happens to construction all across the country starting in the Spring. The only thing stopping it is a US Congress stuck in a quagmire, particularly in the US House, continually proclaiming how its main goal is to create jobs, when based on their actions, that job-creating objective is way down their pecking order list of what they are actually working on. US citizens are clearly aware of this, and are starting to get very upset. They expected the November 2010 election to result in the US government putting job creation front and center, clearly trumping everything else. It is not happening.
