Transcript: Chevron CEO John Watson’s testimony defending oil tax subsidies
“The oil and gas business pays its fair share of taxes.”
“It’s wrong to increase taxes on oil and gas companies to subsidize other forms of energy.”
“Don’t punish our industry for doing its job well.”
- Chevron announced first quarter net income of $6.2 billion in 2011, approximately 35% increase from $4.6 billion in the first quarter of 2010.
- “Our first quarter financial performance was strong. Current quarter earnings from upstream operations benefited from higher prices for crude oil, while downstream operations benefited from improved margins on refined petroleum products,” John Watson, CEO and board chairman of Chevron Corporation, on April 29, 2011.
Full Transcript of the May 14th Testimony:
Senate Finance Committee
Chairman & CEO
Mr. Chairman, ranking member Hatch, and ranking members of the committee, I am John Watson, chairman and chief executive officer of Chevron Corporation.
Affordable, reliable energy is the backbone of America’s economy and competitiveness. Fortunately, our nation is endowed with an abundance of energy including oil and natural gas. Each time we come to Capitol Hill, we advocate for measures that would better help America develop our energy supplies. More domestic supplies, along with measures to use energy more wisely, is one of the most effective ways to counter rising energy prices, enhance our energy security, and stimulate economic growth.
Tax increase on the oil and gas industry, which will result if you change longstanding provisions of the U.S. tax code, will hinder development of energy supplies even to moderate energy prices. It will also mean fewer dollars to state and federal treasuries and fewer jobs – all at a time when our economic recovery remains fragile and America needs all three.
Because my time is limited, I’ll make three points today:
First, the oil and gas business pays its fair share of taxes. Despite the current debate on energy taxes, few businesses pay more in taxes than the oil and gas companies. The worldwide tax rate for our industry in 2010 was 40%. That’s higher than the U.S. statutory rate of 35%, and the rate of manufacturers at 26.5%. Between 2005 and 2009, our industry paid or accrued to the U.S. government almost $158 billion in taxes, royalties and fees, including $98 billion in federal income taxes. That totals nearly $86 million a day.
Changing important tax provisions outside the context of broader corporate tax reform would achieve one unmistakable outcome: it would restrain domestic develop, reduce tax revenues at a time when they are needed most. Likewise, calls to raise royalty fees would increase the cost of doing business in places like the Gulf of Mexico and impede development of these resources just when we’re getting back to work.
Second, longstanding oil and gas provisions in the tax code parallel tax treatments in other industries or are designed to prevent double taxation of income. For all U.S. businesses, a basic tax principle is they are taxed on income after costs. All companies in all sectors may deduct these costs in various ways. The oil and gas industry can deduct tangible drilling costs, such as site preparation, labor, engineering and design. These expenses are similar to the research expenses deducted by pharmaceutical and technology firms. These deductions allow the companies to recover the cost of risky investments, loss or risks necessary for the viability of their business.
The tax provisions some seek to change are longstanding provisions in the tax code. Many apply to other segments of the U.S. economy, including the manufacturer’s deduction and life of accounting. We’re deeply concerned about the proposal to curtail foreign tax credits for dual capacity tax payers. Credits on foreign income taxes are critical because without these credits, which are available to all taxpayers, we would pay tax twice on incomes generated overseas. This would make us less competitive internationally and cost U.S. jobs that support our overseas operations.
My third point is that there should be equitable treatment for all forms of energy and for all energy producers, large and small. I am an advocate for developing all forms of energy and using energy more wisely. But it’s wrong to increase taxes on oil and gas companies to subsidize other forms of energy. This is also likely to have serious unintended consequences for production, jobs, and revenues. Singling out five companies because of their size is even more troubling. Such measures are anti-competitive and discriminatory. After all, our five companies are providing the technical, operating, and managerial expertise that is allowing the global energy industry to operate at the forefront of energy development.
Let me close by suggesting that the most sensible path is simple: Don’t punish our industry for doing its job well. Create energy and tax policies that make our country more attractive place to do business. Allow us to develop our nation’s vast energy resources, and strengthen, don’t weaken, our ability to compete with large national oil companies who are major players in the U.S. and global energy markets. Responsible development of our resources which would be enabled by sound tax and energy policy will add more high-paying jobs, provide billions in new tax revenues, and reduce our dependence on foreign energy supplies.If our nation’s concern is keep our investment here at home and ensuring reliable, affordable energy for all Americans, then what we ask for here is what we look for anywhere we invest: conditions that are not punitive nor discriminatory, but stable, transparent, and equitable.
Mr. Chairman, I’m proud to lead a 132-year-old American company. I’m proud of the vital role we play in our economy. And I’m proud of the profits allowing us to make significant investments in our communities and the long-term health of our country. Thank you.
- CSPAN.org: Oil executives defend tax breaks
- Chevron.com: John S. Watson biography
- Chevron.com: News release: Chevron reports first quarter net income of $6.2 billion, up from $4.6 billion in first quarter 2010 (PDF)
- Chevron.com: 1st Quarter 2011 Chevron Earnings
- Associated Press: How the oil industry saves $4.4B a year on taxes