Exxon Tax Puzzle: Exxon Mobil finds itself in a tax quagmire, with income tax payments to the U.S. government dropping to a mere 3% over the last five years, a far cry from its 20-year average, thanks to substantial deductions under former President Donald Trump. Corporate tax experts suggest that Exxon may continue to enjoy these low taxes, presenting a challenge for the government’s ambitious climate change initiatives.
Despite President Joe Biden’s introduction of a minimum corporate tax, its effectiveness is questionable, especially when factoring in the accelerated depreciation deductions from the Trump era. This allowed Exxon to slash its tax rate to an astonishingly low 2.5% on a domestic profit of $28.3 billion. This stands in stark contrast to other major companies like Apple, Meta Platforms, JPMorgan Chase, Sherwin-Williams, and Union Pacific, which paid at least seven times higher tax rates on domestic profits.
Exxon’s tax advantage highlights a broader issue within the U.S. tax code, hindering the Biden administration’s pursuit of global leadership in reducing reliance on fossil fuels. The corporate minimum tax is a vital revenue source for Biden’s green energy agenda, but its rollout has faced delays and challenges, adding to the complexity of the tax landscape.
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The tax code transformation since Trump’s Tax Cuts and Jobs Act of 2017 has had a profound impact on Exxon’s tax rates. While the company’s average federal income tax expense was 17% between 2003 and 2017, it plummeted to less than 3% in the three years of profitable domestic operations post-2017. Last year, Exxon’s tax rate hit a meager 2.5%, resulting in a payment of $696 million instead of the nearly $6 billion it would have paid at the statutory tax rate of 21%.
Exxon defended its position, stating a U.S. income tax liability for 2022 in the “several billion dollars” range, the highest in over a decade. However, details remain elusive. Trump’s accelerated depreciation, allowing immediate deductions for capital investments, benefited Exxon substantially. Industry lobbyists are now pushing to extend these tax breaks, posing a potential roadblock for Biden’s tax reforms.
The complexity of tax policies, especially accelerated depreciation, creates a situation where deferred income tax liabilities can linger indefinitely, challenging the government’s ability to ensure fair and consistent taxation. As Exxon navigates these tax intricacies, the broader implications underscore the ongoing battle between economic interests and environmental objectives.