American oil and gas companies enjoy such extravagant tax breaks on their U.S. income that these companies are paying five times more income tax to foreign governments than they are in their home country—despite extracting most of their oil in the U.S. during this period, a new report from the FACT Coalition shows.
The report focuses on 11 U.S. oil companies with substantial foreign exploration activities, and finds that since 2017, these companies paid $135 billion in income taxes to foreign governments, but just $29 billion to the U.S.
Since the federal corporate tax rate was reduced to 21 percent in 2018, FACT finds, these 11 oil companies have enjoyed $173 billion of U.S. pretax income, on which they reported $24 billion of federal tax expense. This works out to a seven-year 14 percent federal tax rate for these firms. Even worse, the companies’ current federal tax payments for these years (not counting taxes deferred to later years) works out to a seven-year average tax rate of only 12 percent.
This new report lends support to the findings of a 2024 ITEP report, which looked at the post-2017 effective federal income tax rates paid by the largest consistently profitable companies in America across all industries. That report found a 12.8 percent nationwide effective tax rate for these companies between 2018 and 2021. ITEP’s report, based on a larger sample of oil and gas companies over a shorter time period, found that this industry as a whole enjoyed a current federal tax rate of less than zero over this period, with an average federal tax rate of negative 0.6 percent.
The low tax rates for big oil are in part due to tax breaks available to many industries, such as the Trump administration’s accelerated depreciation tax breaks (which took effect in 2018 and were made permanent earlier this summer).
But as the FACT report notes, Trump-era tax breaks give multinational oil and gas companies additional advantages. First, oil and gas extraction is the only sector that receives a complete exemption from the 2017 tax law’s (already weak) minimum tax on offshore income. Second, American corporations are generally allowed to claim credits against their U.S. income taxes for income taxes paid to foreign governments (to prevent double-taxation) but oil and gas companies are allowed to claim these credits even for payments they make to foreign governments that are not taxes (like royalties paid for drilling on foreign land).
This is roughly the equivalent of the IRS letting you count your parking tickets as an income tax payment.
Incredibly, the tax cuts pushed through by the Trump administration earlier this summer will likely make this tax inequity worse rather than better: the new tax law exempts oil companies’ foreign extractive income from the Corporate Alternative Minimum Tax (CAMT), a vital backstop tax enacted in 2022 to ensure that the largest, most profitable corporations will pay at least 15 percent of their financial statement income in tax.
This dismal pattern of oil-industry tax avoidance comes at a time when Americans can least afford it: the nation’s $1.8 trillion budget deficit for the fiscal year that ended in September was driven primarily by a double-digit decline in corporate taxes. Virtually any means of closing this budget gap will fall squarely on middle-income families—including those recently laid off by these same oil companies.
The good news is that there’s a clear path forward available for any Congress that chooses to pursue it: repealing the lavish tax breaks for domestic oil production and curtailing the absurdly generous U.S. subsidies for offshore production would be a good start.
At a time when the Trump administration has signaled it will no longer participate in the OECD’s vital effort to require the largest multinationals to pay a minimum 15 percent worldwide tax rate, our own minimum tax policies, CAMT and GILTI, could each easily be strengthened in a way that would put other less-polluting industries on a level playing field with the oil and gas giants.
Importantly, FACT also recommends improving the public disclosures of income and taxes these companies must make to their shareholders, with an emphasis on providing the same country-by-country detail now required in many other countries. Business groups have long lobbied to prevent this level of disclosure, and the painstakingly careful findings of FACT’s new report give us a brief window into what these companies don’t want us to know. (Notably, the oil industry’s aversion to public disclosure isn’t limited to taxes: in an astonishing act of hubris, ExxonMobil is currently suing the state of California for requiring oil companies to give their shareholders an estimate of how future climate-change scenarios might affect the company’s viability.)
Even in economic sectors for which the business plan isn’t centered on slowly destroying the planet, the corporate income tax is a vital tool for ensuring that businesses help to support the cost of public investments. But because the oil and gas industry imposes outsized costs on Americans (and residents of other countries) by exacerbating the climate crisis, it’s doubly important to ensure that these companies are paying their fair share of the corporate tax.
