Bastiat

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    • Wed Feb 6th 20:17 PM | Rating: 0 0
      Commented on:
      Exxon's 2007 Tax Bill: $30 Billion
      betaray... you make a good point but only halfway. You need to distinguish between book taxes and cash taxes. Income tax expense is based on accounting (book) taxes. The amount added to deferred taxes roughly equals the timing difference between book taxes and cash taxes actually paid. This difference arises because, for instance, depreciation on capital equipment is faster for cash tax purposes than for book purposes.

      Therefore, because cash tax depreciation is faster, the depreciation amounts are larger each year during the life of the capital asset and income is reduced by more than it would be under book depreciation. Thus, cash taxes are lower than book taxes.

      What you've missed, however, is that while this year's income tax expense will translate into some deferred taxes this year's cash taxes will include deferred taxes accrued in previous years and paid this year. So your analysis that yields a 10% tax rate isn't correct.

      I don't know what Exxon will pay in cash taxes this year. I haven't looked at its financial statements lately. I do know, however, that most all of its income tax expense will translate to cash taxes at some point. So your point really comes down to the difference between tax expense today and the net present value of deferred taxes plus cash tax paid this period. The $21 billion figure you quote is undiscounted; the actual NPV of the deferred amount is much lower.
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    • Wed Feb 6th 16:32 PM | Rating: 0 0
      Commented on:
      Exxon's 2007 Tax Bill: $30 Billion
      Whoops... actually the $30k AGI figure I cited is for a joint return. For an individual the taxable AGI threshhold is around $20k or so.
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    • Wed Feb 6th 16:03 PM | Rating: 0 0
      Commented on:
      Exxon's 2007 Tax Bill: $30 Billion
      vikingv:

      An American individual doesn't begin to pay income taxes until he has adjusted gross income of slightly north of $30k. Up to that level deductions serve to negate any income tax.

      The 35% rate is a marginal US income tax rate. The 41.4% rate is an average rate that covers all sorts of income (much of it outside the US) fro sales, asset dispositions, etc..., some of which is taxed at rates much higher than 35%.

      Not that you're particularly interested in accurate details...
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    • Wed Feb 6th 11:40 AM | Rating: 0 0
      Commented on:
      Exxon's 2007 Tax Bill: $30 Billion
      A couple commenters aren’t quite on target regarding who pays the ExxonMobil (XOM) tax bill.

      The fact is that consumers do not pay XOM's income tax bill (I believe that Mark Perry refers only to the income tax bill.) Only XOM shareholders pay that bill. Taxes are paid on net income, which is the profit left after costs incurred in the manufacturing process (e.g., higher crude oil prices; energy input costs; etc...)

      The taxes that consumers do pay related to XOM are the excise taxes (state and federal) on gasoline. These are completely unrelated to the pre-tax price at which a retail gasoline merchant sells product. That price is a function of manufacturing / transport / marketing costs and the competitiveness of the market. Retail gasoline is as close to a textbook price-competitive market as one can find (at which price equals marginal cost.)

      As a former corporate finance specialist for ExxonMobil I can assure readers that the retail gasoline and diesel business in North America is usually only marginally profitable. The attractive returns in the integrated oil and gas business recently have been in refining, where huge barriers to entry and rewards for economies of scale exist, and of course in the highly risky business of exploring for, finding and producing crude oil.

      Finally, even though consumers do not directly pay XOM's income tax bill when they buy gasoline at an Exxon or Mobil station, we pay it nevertheless because most of us are XOM shareholders to some degree. From blue-collar workers to Wall Street titans we have an interest in pension funds or investment portfolios that carry large chunks of XOM stock.

      As Peter Drucker once noted, if we define socialism as the common ownership of economic assets then the United States via it's pension funds and widely dispersed investment wealth is the most socialist nation in human history.
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