Corporations and the Tax Man

Steven Malanga takes on the "free-ride for business" myth at RealClearMarkets. Check it.

Many businesses we regard as successful operate on small profit margins. After paying $5.8 billion in taxes in 2005, Wal-Mart earned $11.7 billion—a nice chunk of change. But those earnings were on revenues of $312 billion, a mere 3.4 percent net profit margin. Exxon Mobil earned $36 billion in 2005 after paying $23.3 billion in taxes on revenues of $371 billion. Looking at that result you realize that in America today, a ‘windfall’ profit is one that amounts to less than 10 percent of revenues.

With profit earning companies vilified so much in the media, and threats of increased rates always on the horizon, it’s easy to forget that we have the second highest corporate tax rate among OECD nations.

On their way out the door for August vacation, Congressional leadership threatened all kinds of windfall profit taxes aimed at oil companies – as if taking more money from a business would result in lower prices, especially ones who are already paying record taxes in keeping with their profits.

This Wall Street Journal article also sheds some light on "windfall profits," pointing out that compared to other industries, oil has one of the lowest profit margins.

Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon’s profits don’t seem so large. Exxon’s profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).

If that’s what constitutes windfall profits, most of corporate America would qualify. Take aerospace or machinery — both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau’s industry rankings.

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