A new report by Washington, DC-based Citizens for Tax Justice (CTJ) contends that the major oil and natural gas companies and top executives use the tax breaks from the federal government to line their pockets.
"In the top five oil companies, managers direct most of their excess cash to dividends and stock repurchases, both of which drive up the companies' share prices and executives' stock option values," said the report, which was written by Steve Wamhoff, legislative director of CTJ, and Jeff Hooke, author of four books on investment and finance.
"The percentage of net profits directed towards dividends and stock repurchases for the top five oil companies was 58% in 2005, 73% in 2006 and 72% in 2007, 71% in 2008 and 89% in 2009. These figures are high in comparison to other comparisons," the report said.
The report says the largest five oil companies earmark less than 10% of their profits for exploration of new oil fields, and less than 5% of their profits for alternative energy investments.
The American Petroleum Institute (API) called the charges baseless. "Charges that America's oil and natural gas companies don't pay their fair share and enjoy too many incentives are not supported by the facts. According to the Energy Information Administration [EIA], the industry's effective federal income tax rate is more than two-thirds higher than the average for all manufacturing industries. Another EIA study shows renewable energy industries enjoy double the incentives of those for oil and natural gas," the producer group said.
"Many of the tax provisions cited as oil and gas industry 'tax loopholes' are neither 'loopholes' nor unique to the oil and natural gas industry. For example, Section 199 of the Tax Code allows 'all' manufacturers to deduct their manufacturing expenses in an effort to keep jobs in the United States and create new ones," API said.
CTJ called on Congress to stop subsidizing the oil and gas industry with "unjustified" tax breaks.
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