Last week, the Center for American Progress published a misleading blog post in hopes of drumming up support for Democrats’ proposed tax hikes on oil and natural gas producers.

CAP’s statements are bolded and immediately followed by ATR’s rebuttal.

ExxonMobil Corp.'s robust balance sheets have become a poster child for what The New York Times dubs the “paradox of the United States tax code.” The company’s large 2010 profits allowed them to lead Fortune 500’s annual ranking of the nations’ most profitable firms for the eighth time in a row. But the oil giant’s average effective tax rates are roughly half the 35 percent tax rate that currently stands as the high-water mark for American corporations.

CAP is deft at cherry picking data. The 17.6% effective tax rate for three years is 32% when looked at over six years. If CAP is bent on using those dates, a more effective point of comparison would be to compare it to other corporations like GE, which received a $140 billion bailout during 2008 alone.

And even taking this 17.6% at face value, this number far exceeds the rates other large U.S. corporations have paid over the last five years.  According to The New York Times, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.

ExxonMobil and other big oil companies continue to exploit tax loopholes for nearly $4 billion in subsidies each year – intended write-offs for domestic production that were “intended for manufacturers, not big oil producers.”

Unlike other sources of energy, the government does not give American oil and natural gas companies a cent to produce oil or gas. The deduction “intended for manufactures” is actually what’s known as Section 199. 

Section 199 is not a special incentive for the oil industry.  It is a standard deduction that applies to all domestic producers – to movie producers, coffee roasters etc. and is intended to support job creation and retention in the US.  While the oil and natural gas industry employs only 6% deduction, nearly every other industry employs a 9% deduction.

Cites a new Tax Justice report which explains, “Over the past two years, ExxonMobil reported $9,910 million in pretax U.S. profits, but it enjoyed so many tax subsidies that its federal income tax bill was only $39 million — a tax rate of only 0.4 percent.” Claims ExxonMobil paid no taxes at all in 2009 on profits of nearly $2.6 billion

This is an example of how CAP uses data out of context, leading to distortions.  The reason Exxon’s rate was only .4 percent is because they’d overpaid in prior years. Specifically, ExxonMobil’s income tax expense related to 2009 activities was approximately $500 million – and over the past five years, they incurred a total U.S. tax expense of almost $59 billion.

Even when Exxon had a record profit of $40 billion in 2008 due to record oil prices it had only a 31% effective tax rate.  That’s 13 percent lower than the maximum 35 percent despite being ExxonMobil’s fifth years as the top corporate earner. 

The math doesn’t add up here.  Either the authors made a mistake or they have engaged in fuzzy accounting.

There is a big discrepancy between ExxonMobil’s rates and those of most American breadwinners.  Their effective rate of 17.6 percent is nearly 16 percent below the average individual federal tax rate, which was 20.4% as of 2007.

The more complex answer is that there is a clear lack of understanding about who actually pays taxes in America.

Companies pay taxes while the actual burden of taxation falls on consumers, employees, and shareholders. Consumers pay taxes in the price they pay at the pump, employees pay taxes in lowered take home pay and investors—including pensioners, retirees, insurance recipients and other individuals pay in reduced dividends and capital gains. They then must again pay taxes on their dividends, capital gains, pension and annuity income or money derived from IRA, 401k plans and the like.

The burden of taxes, whether in the form of sales, property or income, ultimately falls on individuals. CAP is trying to pretend that some entity other than individuals ultimately pays the taxes.

Individuals in the highest quintile pay an average tax rate of just over 25 percent in the United States.  ExxonMobil pays approximately the same effective tax rate as Americans in the fourth income quintile –which includes Americans earning from $62,000 to $100,000 a year.

See point above. 

ExxonMobil’s accounting methods mask its relatively low effective tax rate.  Exxon counts part of its tax burden taxes that it simply doesn’t pay.

CAP arbitrarily ignores the taxes they don’t like – including payroll taxes.  Payroll taxes are a large part of operations and consequently a large part of the effective tax rate.

ExxonMobil now finds itself with the difficult task of publically rationalizing Exxon’s share of billions in subsidies, despite the company reaping enormous profits and paying relatively little in the way of taxes.

Exxon pays more in taxes than it receives in earnings.  In 2010, ExxonMobil’s total tax expenses in the United States were $9.8 billion, which includes an income tax expense of more than $1.6 billion. That $9.8 billion in taxes exceeded ExxonMobil’s 2010 U.S. operating earnings of $7.5 billion.

And over the past five years, ExxonMobil incurred a total U.S. tax expense of almost $59 billion, which was $18 billion more than it earned from its U.S. operations during the same period.