- The Washington Times - Friday, March 14, 2008

ANALYSIS/OPINION:

In 2000, the top income-tax rate for stock dividends paid to individuals was 39.6 percent. That was the same top income-tax rate that applied to wages and salaries. After the 2001 and 2003 tax cuts were enacted, the top income-tax rate for salaries declined to 35 percent, while the top dividend tax rate plunged to 15 percent. The dividend tax rate was effectively cut by 62 percent, providing corporations and their shareholders with huge incentives to raise dividend payments.

Consider what has happened at ExxonMobil, whose profits increased from $11.5 billion in 2002 to $40.6 billion in 2007. (To appreciate the magnitude of ExxonMobil’s annual profit, consider also the fact that only 56 U.S.-based corporations had revenues greater than $40 billion in 2006.) ExxonMobil’s annual cash flow, which mostly represents the sum of its profits and depreciation and depletion costs, increased from $24 billion in 2002 to $56 billion in 2007. What did ExxonMobil do with all this cash?

While ExxonMobil’s annual profit increased by more than 250 percent between 2002 ($11.5 billion) and 2007 ($40.6 billion) and while its cash flow increased by 133 percent between 2002 ($24 billion) and 2007 ($56 billion), its stock-dividend payments increased by less than 25 percent, rising from $6.2 billion in 2002 to $7.6 billion last year. Where did all the cash go? It didn’t go to capital and exploration expenditures, which increased from $14 billion in 2002 to $20.9 billion in 2007. Indeed, between 2002 and 2007, ExxonMobil’s capital and exploration expenditures increased at one-fifth the rate that its profit increased.

By far the biggest portion of ExxonMobil’s cash flow was used to fund a large stock-repurchase program. In 2007 alone, ExxonMobil spent $31.8 billion to purchase its shares; that amount was nearly $11 billion more than the $20.9 billion that ExxonMobil spent on capital and exploration last year. In fact, during each of the last three years, ExxonMobil spent more money buying back its stock than it spent on capital and exploration expenditures. For the 2005-07 period, it spent $80 billion purchasing its stock. Over the same period, it paid $22 billion in dividends and spent $58 billion on capital and exploration. Is this what the Republican-led Congress intended when it reduced the top dividend tax rate from 39.6 percent in 2000 to 15 percent in 2003?

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