Higher oil and gas taxes are typically passed on to consumers in the form of higher energy prices and elevated fuel costs. This reality is accepted as common knowledge by most Americans.
However, raising the tax burdens of the oil and natural gas industry also creates an economic issue that rarely receives sufficient media attention – the reduced value of retirement accounts for millions of Americans.
Like most corporations in the U.S., oil and gas companies are not owned by a few wealthy individuals. Instead, an analysis by the economic advisory firm Sonecon revealed that oil and natural gas shares are actually owned by millions of ordinary Americans, oftentimes through their retirement savings.
According to Sonecon’s research, less than 3 percent of shares in publicly traded oil and gas companies are owned by corporate management personnel. Meanwhile, nearly 50 percent of oil and natural gas shares are held by public and private pension plans, including IRAs and 401(k)s.
- Approximately 18 percent of industry shares are held through IRAs. Roughly 80 percent of these account holders averaged annual incomes of $70,000 or less in 2010.
- More than 31 percent of industry shares are owned by public or private pension plans, including 401(k)s. The funds manage assets for more than 60 million households with an average account value of less than $55,000.
Furthermore, individual investors who manage their own holdings possess roughly 21 percent of corporate oil and natural gas shares.
The remaining 26 percent of publicly traded oil and gas shares are held by asset management companies and other financial institutions in the form of mutual funds. These mutual funds are held by roughly 52.3 million American households with a median annual income of $80,000.
As you can see, oil and natural gas earnings are a healthy benefit to the retirement security of millions of Americans. Roughly 97 percent of publicly traded oil and gas shares in the U.S. are held by individual investors in the form of mutual funds, IRAs, 401(k)s and public or private pension plans.
Moreover, these findings do not take into account ownership figures of privately owned oil and gas companies. These independents are also enhancing the retirement security of Americans by allowing investors to take advantage of the hefty returns and active tax benefits the oil and gas industry provides.
Although it is true that oil and gas companies account for a small portion of total investments in retirement accounts, they do represent a larger percentage of the overall return on such investments. Because of this, raising taxes on oil and gas would lower the amount of money investors receive from their retirement funds.
For example, in the state of New York, oil and natural gas companies represented 3.8 percent of assets held in pension funds in 2012 but were responsible for 9.3 percent of total returns. This pattern is consistent across other states.
The Obama administration has repeatedly called for the congressional removal of oil and natural gas subsidies. If these “subsidies” are removed, or the tax burdens of oil and natural gas companies are otherwise increased, the economic performance of the industry will suffer.
More importantly, such taxes would adversely affect the retirement security of individual shareholders in the U.S. - the principal owners of publicly traded oil and gas companies.
About the Author:
Landon Arnold is the Vice President of Information Technology for TAP Management. The company specializes in the drilling and development of mature oil and natural gas fields.