Candidates disagree on oil companies' tax rate
— -- Should it pay higher taxes?
Democratic presidential nominee Barack Obama wants to impose a "windfall profits tax" on oil companies and use the money to provide tax rebates of $500 for most individuals and $1,000 for most married couples. Republican nominee John McCain opposes the idea.
McCain wants a dramatic cut in the top corporate income tax rate — to 25% from 35% — that would save ExxonMobil and other oil companies several billion dollars a year. Obama opposes this.
Both candidates, however, want to close some "loopholes" that let Exxon and other oil companies save several billion dollars a year in taxes.
The disagreements reflect broader differences between Republicans and Democrats on energy policy. McCain generally supports lower taxes to encourage domestic exploration and promote energy independence.
Obama backs higher taxes on the oil industry to help provide tax breaks for individuals and to promote renewable energy. He says high prices ($78.63 per barrel Tuesday, down from an intraday high of $147.27 on July 11, but up from $40 in 2004) are incentive enough to produce.
Oil industry tax breaks aren't huge considering the size of the industry, says Jeffrey Hooke, an investment banker in Bethesda, Md., who has studied the incentives. But Hooke says the tax breaks should be abolished because the industry is too profitable to need tax favors.
"They spend their profits mostly on dividends and buying back their own stock, not exploration," Hooke says.
ExxonMobil spokesman Alan Jeffers disagrees: "If you increase taxes, you reduce the … money we have available to invest in exploration."
Taxes already substantial
Whether oil companies should pay higher taxes is clouded by an unusual twist: The companies are already heavily taxed compared with other U.S. industries. But they are lightly taxed compared with what they pay abroad.
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