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Chevron CEO Slams Obama's Proposed Energy Tax Reforms

by Mike Godfrey,, Washington

24 October 2011

During a speech at the Peterson Institute for International Economics, John S. Watson, Chairman and CEO of Chevron Corporation, has warned that the tax reforms being proposed by President Obama would risk making United States energy more scarce and expensive.

Given that the maintenance of affordable energy, for both individuals and businesses, should be the priority underpinning all official policies, US energy policy, according to Watson, “is moving in the opposite direction. Instead of promoting abundant and affordable energy, (US) policies are creating a framework that risks making energy more scarce and expensive.”

He said that neither the regulatory barriers being imposed against oil and gas development, both onshore and offshore, nor the “punitive and selective tax increases on the industry which are being proposed by the Administration and some members of Congress,” will help the provision of affordable energy.

He disclosed that, in 2010, Chevron paid an effective global tax rate of more than 40%, and, between 2005 and 2009, the US oil and gas industry paid the federal government a total of USD158bn in taxes, royalties and fees. “Yet here in Washington,” he added, “we continue to hear talk about taking away so called ‘tax breaks’ and ‘loopholes’ given to big oil.”

Watson emphasized that those tax breaks are the same, or similar to, provisions available to other companies in other industries. For example, one proposed takeaway from the oil and gas industry would the manufacturer's tax credit, which was adopted as part of the American Jobs Creation Act of 2004 and applies to a broad range of companies involved in manufacturing and production.

“The manufacturer's tax credit was enacted specifically to stimulate job creation. So it's ironic, at best,” he considered, “that the government is proposing elimination of the tax provision for an industry that already supports more than 9m American jobs, with the potential to create many more.”

In another example, he pointed out that the government wants to introduce double taxation on foreign incomes for international oil companies, denying them the same foreign tax credits that are available to all other industries. He pointed out that “this ‘dual capacity’ provision would reduce competitiveness of US oil companies operating overseas relative to Chinese, Russian, and Indian firms – which are all competing with US companies for oil and gas resources. It would also diminish our ability to invest, and effectively reduce supplies in world markets.”

Watson called the proposals “short-sighted”, in that, overall, “the Administration is proposing changes to the US tax code that would effectively increase the tax call on our industry by nearly USD90 billion over 10 years.”

He was aware that “in a political calculation about taxes, it is tempting to target our industry. We report large earnings. But, we also make large investments. In 2010, for instance, Chevron earned about USD19bn. But this year, we're investing USD26bn in capital expenditures worldwide, including USD7bn in the US, for new energy projects. And next year we'll spend even more.”

He speculated as to why other companies, such as Apple, with greater profit margins but lower effective tax rates, are not threatened with increased taxes - “we actually hear talk of tax holidays for the tech sector and others.”

While there is broad consensus about the need for tax reform, he pointed out that “it should be approached equitably and comprehensively, not by singling out specific industries or sectors.”

TAGS: tax | economics | business | tax incentives | royalties | fiscal policy | energy | corporation tax | oil and gas | tax credits | United States | tax reform

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