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Who Really Owns the Oil Companies?

issue brief

Who Really Owns the Oil Companies?

Diana Furchtgott-Roth May 1, 2012
Energy & EnvironmentOther

Many Americans believe that the oil and gas industry is owned by a few wealthy industrialists whose profits can easily be taxed away. Of course, raising taxes on any industry creates economic distortions. Higher oil and gas industry taxes means less investment in the industry and fewer employment opportunities for workers in the industry. Moreover, higher oil and gas taxes are passed along to consumers in the form of higher prices. Consumers suffer many times when oil and gas prices rise both through their direct purchases of oil and gas and indirectly through higher prices for goods that depend on energy.

But there is yet another rarely considered cost to higher taxes on the oil and gas industry: the reduced value of retirement accounts for Americans. As it turns out, oil and gas companies, like most large American corporations, are not owned by a few wealthy individuals. Instead, they are owned by millions of ordinary Americans and foreigners, often through their retirement savings. Contrary to popular belief, only about one percent of the shares of the five major oil companies are held by officers and directors of these companies. The rest is held by institutional investors and individual Americans, mostly in retirement accounts.

Raising taxes on oil companies would hurt Americans who benefit from oil companies stocks in their retirement portfolios. In the State of New York, for example, oil and gas investments in the two largest pension plans, the State Employees' Retirement System and the Public School Employees' Retirement System contributed 21 percent of the funds' return. Higher taxes on oil and gas companies would hurt New York’s taxpayers, who would have to put more into the funds to make up for their lower returns.

Even so, the Obama administration proposed raising taxes on domestic oil and gas producers in its fiscal 2013 budget. Such taxes would, if approved by Congress, harm the economic performance of the industry and encourage investment overseas. Moreover, such new taxes would hurt American shareholders, the primary owners of these companies.

Oil and natural gas companies represent a small proportion of total investments in retirement accounts, yet account for a larger share of the return on these investments. Raising taxes on oil and gas would reduce the return on investment, and the returns to these retirement funds. In pension funds in the State of New York, for example, oil and natural gas companies represented 3.8 percent of assets, yet were responsible for 9.3 percent of returns. The same pattern holds true in other states.