Exxon's Record Taxes, Capital and Exploration Spending in Perspective

| About: Exxon Mobil (XOM)

Exxon (NYSE:XOM) has already paid $19.828 billion in income taxes for 2008 (data here), and will probably pay almost $40 billion in income taxes this year (see graph above, income tax data for 1999-2007 taken from Exxon's annual reports).

To put $40 billion of income taxes in perspective, it can be reasonably estimated that Exxon will pay more in income taxes this year (both here and outside the U.S.) than the entire bottom 50% of American individual taxpayers (about 67 million) will pay in income taxes this year.

Using IRS tax data through 2005 (in Table 6, data here), and making reasonable projections for tax payments in 2006, 2007 and 2008, the bottom 50% of taxpayers will pay an estimated $34 billion in income taxes this year, and it will probably be the first time in U.S. history that a single corporation paid more in income taxes than the entire bottom 50% of U.S. taxpayers.

Update 1: Of course, corporations don't actually pay taxes, they collect them, in the form of higher prices for consumers, lower wages for employees and/or lower dividends for shareholders. In other words, people pay all taxes in their roles as consumers, workers and shareholders.

Update 2: Exxon is a global company and operates in the United States, Canada, Europe, Africa, Asia-Pacific, the Middle East, Russia/Caspian region, and South America. In 2005, Exxon earned about 70% of its profit outside the U.S. and paid 70% of its income taxes outside the U.S., and in 2006 Exxon earned 71.4% of its profits outside the U.S. and paid 81% of its taxes outside the U.S. Source: Exxon's annual reports.

Update 3: What gets reported by the media is Exxon's second-quarter record profits of $11.68 billion for a U.S.-based company, without distinction between profits earned in the U.S. and profits earned outside the U.S. Likewise, Congress reacts to the total amount of Exxon's record profits with proposals of "windfall profits taxes," without a distinction between profits earned in the U.S. and profits earned outside the U.S.

Therefore, when it comes to a discussion of Exxon's income taxes, it also makes sense to look at Exxon's total income tax payments of $10.5 billion in the second quarter, or $40 billion for the entire year. Although not all of Exxon's income taxes are paid to the U.S. Treasury and not all of Exxon's profits are earned in the U.S., I think it is still useful to put $40 billion of taxes into perspective by comparing that amount paid by a single corporation to the amount of income taxes paid by the bottom 50% of U.S. taxpayers. In other words, record profits for Exxon = record taxes for Exxon.

With all of the media and Congressional focus on Exxon's record profits in the second quarter, what gets neglected (along with Exxon's record income tax payments) is the record amount of spending by Exxon on "capital and exploration," coming in at $7 billion in the second quarter 2008 (data here), the highest amount ever spent by Exxon in a single quarter.

ExxonMobil increased investments across all business lines to help meet global demand for crude oil, natural gas and finished products. Capital and exploration project spending increased to $7.0 billion in the second quarter, up 38% from last year. For the first half of 2008, spending on capital and exploration projects was $12.5 billion.

If the trend continues, Exxon will spend about $25 billion this year on capital and exploration, the highest amount in history (see top chart above). Where are the media reports on Exxon's "record capital and exploration spending?"

The bottom chart above shows some of Exxon's financial results for the first half of 2008, comparing profits, income taxes paid, and capital and exploration expenditures. Note that Exxon has spent more so far this year on income taxes ($20b) and capital expenditures ($12.5b) combined ($32.50) than it made in profits ($22.5b) this year.

Further, note that Exxon's tax rate so far this year is 47%, based on earnings before tax [EBT] of $42.4b and income tax payments of $19.8b, up from last year's rate through the first half of 42.5%. Why doesn't that significant tax hike for Exxon get reported?