Danger looms in raising taxes on state's Big Oil
It's easy to hate Big Oil. When we fill up our cars, we grumble. When we pay our home energy bills, we grumble. When we see the profits multi-national energy companies make, we grumble.
But grumbling must not cloud common sense. Many of our families and neighbors depend on Big Oil for their jobs. Kern County depends on Big Oil to pay for essential government services.
If Big Oil doesn't make a profit, energy production slows down and so does the world's economic engine. The jobs Big Oil creates and the taxes Big Oil pay decrease, adding to the already painful economic slowdown we are seeing in the nation, state and Kern County.
Two California Democrats are once again targeting Big Oil to fill the state's depleting tax coffers. This latest ploy, like previous ones, should be rejected because it will worsen California's budget problems and increase the state's jobless rate.
Assemblyman Pedro Nava, D-Long Beach, has introduced a bill called the Fair Share Act, which would impose a 10 percent oil severance fee on extractions from California wells. Based on an assumed $70 per barrel price, Nava estimates the "fee" will bring in $1.5 billion a year.
Nava's bill is expected to be heard in the Legislature's recently called special session. Money from Nava's proposed oil severance fee will fund general state government services.
Assemblyman Alberto Torrico, D-Fremont, proposes a 9.9 percent oil severance fee, with the money earmarked to fund higher education. Torrico is circulating petitions on university campuses to show support for his oil severance fee, which would raise $1 billion a year.
"Oil companies are getting a free ride," Nava declared at a recent Sacramento news conference.
What free ride? Politicians like Nava and Torrico like to point out that California is the only major oil-producing state that does not charge such a fee, which is a tax imposed on the gross value of oil extracted from the state's lands and sea beds.
But in reality, oil producers pay lots of taxes in lots of ways. According to a study released earlier this year by the Emeryville-based Law and Economics Consulting Group, the amount of taxes California oil producers pay is in the middle range of the 10 largest oil-producing states.
States impose a wide range of taxes on oil producers, including property and corporation taxes. In California, oil producers also pay a 7-cents-a-barrel fee to help support the state Department of Conservation.
Researchers at LECG have concluded if either Nava's or Torrico's oil severance fee is imposed, it will spike California's tax burden well above the highest of any U.S. state.
The consequence of this tax burden will be a reduction in the value of underground oil reserves, which will mean less property tax dollars going into local government coffers.
Kern County alone could expect to see property tax revenues decline in the range of $13 million to $16 million per year, Joe Sparano, president of the Western States Petroleum Association, wrote in a recent opinion article. He also predicted California would lose nearly 10,000 jobs and energy prices will increase.
To pass, an oil severance requires a two-thirds vote of the Legislature. Likely Republicans will not agree.
Nava's "Fair Share Act" will be considered during a special session on tax reform. Unless they want to keep seeing this oil-tax dog dragged into the Capitol, naysayer Republicans need to be as open to "revenue generating" as they are to "service cutting" when they consider reforming taxes and closing the state's widening budget gap.
