Think High Corporate Income Taxes Are What is Harming America’s Energy Corporations? Chesapeake Energy Paid 1% of Pretax Profits Over 20+ Years

$5 billion in Pretax Profits - $55 million in Corporate Income Taxes

A study of the corporate income taxes actually paid by Chesapeake Energy shows why Conservatives are so adamant about cutting or eliminating the corporate income tax.  Bloomberg reports on a study they did of cash taxes, which differs widely from accounting taxes.  In the accounting world financial statements reflect the tax liability if no special tax provisions were in place.  In other words, pure fiction.

Here is what they found out for Chesapeake Energy for 2010.

The measure is different from the standard gauge of tax rates, which compares pretax income to the amount of tax the company accrues for accounting purposes.

Those figures can vary widely. In 2010, Chesapeake accrued $1.1 billion of income tax expense for accounting purposes and reported a 38.5 percent tax rate. But it didn’t pay any cash taxes that year, even though it had $2.9 billion of pretax income. Instead, it got a refund of $291 million.

So why the drive to cut corporate income taxes if for many companies they are already very low on a cash basis.  Well to a great extent the tax benefit is just a deferral, in some cases a very long deferral.

When production from old wells outstrips the expense of drilling new ones, companies that postponed taxes will have to pay up. Chesapeake had a deferred income tax liability of $3.4 billion as of Dec. 31. .  .  .  .

 “If they’re a growing company, that deferral will get pushed out a long time,” said Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology and one of the authors of the 2007 study. “If you defer forever, it’s an exemption.”

So notice what will happen if the corporate income tax is eliminated.  Immediately Chesapeake gets to get rid of a $3.4 billion dollar future liability.  In the real world this is called corporate welfare, and in the tax policy world it is called Republican economics.