If you were treated like Exxon, you wouldn't pay federal income taxes.
This statement isn't hyperbole - it's a provable consequence of the way Exxon is allowed to treat the "taxes" it pays to foreign governments (you've got to get to the bottom of this post to see why "taxes" is in quotes). To be fair, the Foreign Tax Credit sounds pretty innocuous and reasonable - after all, if they pay taxes once why should they pay taxes a second time on the same money? But fair is fair - if the same logic applied to you and I, what would happen to our tax bill?
Let's apply the Exxon tax standard to income taxes for Mr and Mrs. Mythic. They are a dual-income, no-kid household who bring in about twice the median wage ($100K). The Mythics pay $5000 in combined property and state income taxes. They buy $10K worth of products and services subject to state and local sales tax ($800). They use 900 gallons of gasoline with a combined state, local and federal tax of $0.495 per gallon for another $445 turned over to the government. Ms. Mythic works for a company where she earns $60K per year and pays $4590 in social security and medicare taxes. Mr. Mythic is self-employed earning $40K per year, so his social security and medicare taxes are $6120. They also pay state taxes and fees on their cars of about $500. So they've paid about $17,455 in taxes to various levels of government.
For simplicity, let's look at the US Income tax rates to see the maximum possible federal tax liability on $100,000 of income. For married filing jointly, the tax rate on the first $16,750 they earn is 10%, or $1,675. The tax rate on the next $51,520 is 15%, or $7688. The tax rate on last $32,000 of their $100,000 is 25%, or $8000. Thus, the total taxes would be $17,363.
Now if the Mythics could get the same treatment as Exxon - getting tax credit for taxes already paid, their total federal tax bill would be $17,363 - $17,455 = -$92. The Mythics end up with a net tax credit - just like Exxon. So they would be entitled to a full refund of any taxes withheld by Ms. Mythic's employer and any quarterly estimated taxes paid by the self-employed Mr. Mythic.
On the other hand, if our system simply gave deductions for all the taxes paid, then the Mythics would be paying taxes on a net income of $82,545, for a total federal tax of $13,000. Of course, we have a much more muddled system with a variety of deductions. If you go to an online calculator and use some of the above figures, you get an estimated tax of about $12,000. You can imagine that if Exxon didn't have the foreign tax credit it would similarly have substantial taxes to pay. But, much like the taxes on the Mythics - the amount would be fair and similar to what others are paying.
The key point is that Exxon gets a tax credit rather than a tax deduction. The inequity is clear - certainly the cost of foreign taxes is a cost of production and as such should be deducted from revenues(1) - but to give a tax credit for these payments is simply absurd and completely out of line with how the rest of the nation gets treated.
The reward for having read this far is something that should send you through the roof. Exxon has a sweetheart deal - the per barrel oil royalties paid to the Saudi government are treated as foreign income taxes. If you or I run an oil company and find oil on private property, we will will pay a royalty per barrel extracted to the property owner, which is then tax deductible as a cost of doing business. That is - we are buying the oil from the property owner and making a profit on the difference between our costs (including royalties) and the oil selling price - which is what we expect to be taxed upon. But if you're Exxon and the property owner is King Saud, then you get a tax credit for the same royalty payments. In effect, Exxon is claiming that King Saud gave them the oil for free and then charged an income tax based on the value of the gift. Thus, anything you might want to quibble about in my accounting for the Mythics(2) is completely washed away by the fact that Exxon gets to treat a business expense as a tax, and then gets a credit rather than a deduction for this faux tax!
(1) That is, if you are calculating corporate tax based on the difference between income and expenses, which is a post for another day.
(2) e.g. my implication that real estate taxes should have the same accounting treatment as foreign income taxes.