The Tax Foundation says yes:
When the federal statutory corporate income tax rate of 35 percent is added to the weighted average of state corporate income taxes, the resulting rate of 39.3 percent means that corporations in the United States are currently at an international competitive disadvantage. In fact, as recent research has indicated, the top combined state and federal statutory corporate income tax in the U.S. is higher than any other country in the OECD.
Tax Analysts quotes one of the authors as saying the following:
Many who propose taxing energy companies more heavily than other firms, with a windfall tax, believe that these firms somehow escape normal taxpaying requirements, leaving other industries to carry a heavier load.
Of course, this statement is not what many of us who suggested a windfall tax said. It is also interesting that the authors focused on integrated oil and gas producers such as Chevron Texaco, Conoco Phillips, and Exxon Mobil as opposed to companies such as Unocal that are predominantly in the business of extracting and selling crude oil. Even for the integrated producers, the accountants allow an expense for depreciation and depletion, which James Hamilton describes thusly:
For one thing, oil companies face a significant degree of depletion of existing oil fields and depreciation on previous capital investments, meaning huge investments are required just to maintain the status quo. Standard accounting conventions recognize this by subtracting depreciation and depletion as an operating expense, with the presumption being that the investment that would be necessary in order to maintain current production would be counted as a regular business expense rather than something one needs to pay for out of profits.
For Unocal in its last full fiscal year, this allowance was almost $1 billion reducing profits before taxes to $1.83 billion. But my point about accounting profits was less these deductions for items that are not current cash outflows as much as the failure to distinguish between accounting profit and economic profit. Companies such as Unocal earn a significant amount of economic rent when the price of oil rises well above the cost of production.
Dr. Hamilton has taken an interest in the exploration and production of oil from oil sands. In his Are the oil companies earning enough profits yet?, he proposes a couple of approaches to the fact that the cost of producing oil from these sources is substantial:
Plan A is to have our elected government officials make a wise decision about what’s the best source of energy for the years ahead, find the tax dollars to pay for it all, and make sure it all gets produced and delivered on schedule. Plan B is to imagine that the desire to make a profit is so powerful that companies would be willing to invest billions of dollars trying to make oil out of sand.
While Plan A may sound like socialism to some, I’m interested. Plan B asks us to rely on the free market, which makes sense to me. Of course, the pure free market solution with a single tax rate on accounting income – regardless of whether it is economic rent or the return to capital – means that those lucky enough to already have substantial reserves of oil that is cheap to produce will receive very high profits even after the traditional income taxes that the Tax Foundation thinks are too high.