The UC Berkeley Center for Labor Research and Education issued a policy brief arguing that raising taxes will result in fewer jobs lost than would occur under the spending cuts in the governor’s budget proposal.
The brief indicates the best alternative to deal with job losses is to avoid the governor’s proposed cuts and instead raise taxes on oil severance, corporations, and top bracket income tax payers, which will produce billions in new revenue and fund the public sector. The report acknowledges the tax increases would slow economic activity and come with job losses in the private sector.
I’m trying to figure out how reducing jobs and economic activity in the private sector will benefit California in the long run.
The numbers from this pro-labor operation housed at Berkeley are suspect. Especially when you look at the very last line in the policy brief. Many, if not most, of the jobs that the study purports to save are union jobs represented by the Service Employee International Union. The last sentence in the report acknowledges: "This brief was funded by the Service Employees International Union."
Looking at the brief’s summary of the oil severance tax, it states: "An oil severance tax could raise $1.4 billion annually, based on Assembly analysis of AB 1604. We estimate such a tax would reduce economic output by $128 million, decrease state and local tax revenue by $9 million and result in the loss of 400 full-time equivalent jobs. California is the only major oil-producing state without a severance tax."
The job loss estimate is 33% higher in this analysis than was estimated by the study’s authors in an op-ed piece in the San Francisco Chronicle just a month ago.
But even the study’s new job loss figure pales in comparison to the findings of the Law and Economics Consulting Group headed by former legislative analyst William Hamm. His report a year ago projected under a 9.9% oil severance tax nearly 10,000 jobs would be lost in the state.
The oil companies funded the LEGC report, but it seems to make more economic sense. Consider: The Labor Center analysis claims the job losses in oil production would be short term. Hard to believe when raising taxes on oil production would discourage production. If an oil severance tax was loaded on top of the other taxes oil producers pay in California, that would jump the ranking of taxes on California oil producers from sixth highest in the nation to the top — by a wide margin. Jobs would be lost for good.
While the Labor Center study pegs the oil severance tax at $1.4 billion annually, the LEGC study predicted that a new oil severance tax would reduce state revenues from the tax over time because the tax would depress production. There is truth in the age-old wisdom; if you tax something more you get less of it.
Policy makers should take a careful look at the Labor Center brief before embracing its findings.