On the subject of taxation, administration officials count on the public to believe anything.
In his State of the Union speech on Jan. 20, President Barack Obama spoke in generalities but emphasized his wish to dispense benefits funded by higher taxes on the well-heeled.
The next day, Treasury Sec. Jack Lew clarified targets when he denounced "special interest loopholes, deductions, and assorted tax subsidies" in a speech at the Brookings Institution.
"For instance, oil and gas producers are rewarded with a number of special-interest tax breaks that unfairly reduce the taxes of oil companies far below what other industries, like retail and manufacturing, pay on their earnings," he said.
Lew's statement exploits popular assumptions that-like most popular assumptions about oil and gas-happen to be wrong.
According to a dataset maintained by Aswath Damodaran, professor of finance at the Leonard N. Stern School of Business at New York University, the aggregate effective tax rate across all industries is 28.65%. For the category "oil/gas (production and exploration)," the rate is 54.14%.
The average tax rate of all E&P companies is lower than the all-industry average: 7.04% vs. 10.76%. Some E&P companies lose money.
Among E&P companies making money, however, the average tax rate, like the aggregate rate, far exceeds the total market: 41.46% vs. 28.09%.
The dataset has seven retail categories, the highest aggregate tax rate among which is for "special lines." It's 38.01%.
The dataset lacks a general manufacturing category but has data groupings such as "construction supplies," "furniture/home furnishings," and "electronics (general)." No manufacturing-related category has an aggregate tax rate close to that of E&P.
In fact, among 95 categories in the dataset, only three have aggregate tax rates above the E&P level: education, 106.30%; metals and mining, 62.66%; and real estate development, 72.72%.
These data do not support the Treasury secretary's pronouncement about oil and gas industry taxation. Because the pronouncement, faulty as it is, accommodates purposes of the administration, however, repetition of it can be expected.
(From the subscription area of www.ogj.com, posted Jan. 23, 2015; author's e-mail: [email protected])