ConocoPhillips CEO John Mulva thinks that denying tax breaks to his highly profitable global oil and gas company is "Un-American."  People have been really taken with his rhetoric on this one, but his words sent me to his company's 10K.  The truth about Conoco's taxes is buried in the footnotes and it's very revealing.  It's at the core my my column for The Daily today, but I want to get a bit more granular here.

Mulva told the Senate Finance Committee that Conoco's global effective tax rate. on average over the past five years, is 46%.  Right off the bat you know something's up.  Why on Earth would a U.S. company have an effective tax rate that's 11 percentage points higher than the statutory corporate tax rate in the U.S.?  The only answer is that somebody else is taxing Conoco.  Who could it be?

It's not the Federal government.  On pretax profits of $19.7 billion, Conoco paid $1.3 billion to the Feds.  That's less than a 7% federal income tax rate.  It's much lower than what my wife and I paid in 2010.  It's not the states.  Conoco only paid $300 million in state taxes in 2010.  That brings Conoco's total U.S. tax rate to 8.1%,  Again, this is a lower rate than my family paid to the Feds and the state in 2010.  I bet it's lower than what you paid, too.

In 2010, Conoco listed its taxes charged to earnings at $8.3 billion.  If the U.S. only took $1.6 billion, that means that Conoco paid $6.7 billion to other governments where it does business around the world.  That's 34% of its pretax profits.

Mulva will never tell you this, but this is how it breaks down:

Effective Federal and State U.S. Tax Rate: 8.1%

Effective global tax rate ex US: 34%

Apologies for the bold emphasis here but this is important because it reveals two huge lies we've been told by corporate America and by the oil and gas industry.  The first lie is that corporate taxes in the U.S. are among the highest in the world forcing companies to flee for lower tax jurisdictions.  The case of Conoco is evidence that U.S. effective (rather than statutory) corporate taxes are quite low compared to the rest of the world.  But also, notice what Conoco has done... it has actually moved operations to areas where it must pay higher taxes than the U.S. demands.  So any argument that rescinding tax rates would somehow give Conoco the incentive not to look for oil is just bogus.  Conoco will go anywhere that it can find oil, seemingly without huge regard for taxes.  This shouldn't surprise anyone, Conoco being an oil company and all. But there you have it.

Corporate taxes are not, in all cases, lower outside of the U.S. and in the case of Conoco are far higher.  Taxes don't dissuade extraction companies from trying to bring valuable resources to market.

What's really frustrating is that if you look Google Conoco and its 2010 taxes you'll find that nobody has gone beyond its total reported $8.3 billion tax bill.  The underlying numbers are in the filing (Footnote 20, page 125) but nobody in the press has seen fit to dig into them.  That lack of attention allows Conoco's CEO to wildly exaggerate the effect of U.S. taxes on his business.