California politics is feeling the brunt of the tragic Gulf of Mexico oil spill. Besides the issue of offshore drilling becoming a key component in the 15th Senate District special election, Democrats in the legislature see the oil spill opening the door to a major revenue source for funding California governments.
Both the Senate and Assembly Democrats’ budget plans are built on a foundation of taxing oil extracted from within the Golden State. True, efforts to install an oil severance tax have been around long before the Gulf spill, but the oil industry has become a particularly juicy target in the eyes of many legislators since the spill.
Yesterday, the Senate Democrats offered a plan to realign programs as a responsibility of local governments and offered a number of revenue raising proposals to fund the transition. Chief among them were an oil severance tax, removing tax changes offered businesses last year and making permanent an increase in the vehicle license fee.The Assembly budget plan would use the oil severance tax as collateral against new borrowing to fund the current budget. Wall Street has already turned up its nose on this idea, as Treasurer Bill Lockyer revealed yesterday. In addition, the attorney general’s office has found the plan legally suspect.
While the oil industry makes an easy target, voters will not be fooled about the consequences of this tax increase proposal.
Building a program with taxes from a diminishing resource is not a wise plan. Oil production has decreased in California from 424 million barrels in 1985 to 240 million barrels in 2008.
Adding an oil severance tax in California would make California oil production the most expensive in the country by far thanks to other taxes that hit oil companies. That would result in less production and higher prices at the pump because California crude is refined in state and the refined product is sold here. Small producers, particularly, would be put in jeopardy.
Any thought that the oil severance tax will be relied on a "temporary" basis is belied by the newly offered Senate Democratic plan that proposes both to kill a business tax benefit and make permanent a temporary car tax passed just a year ago.
In 2006, voters shot down Proposition 87, which would have enacted an oil severance tax. Consumers feared that the tax increase would be passed on to them. There’s no reason to think any differently now.
The voters’ instincts in opposing an oil severance tax were good. But, with the Gulf oil spill in the news every day, supporters of the tax think they finally have a setting to succeed in punishing the oil companies. If successful, in the end, they will also serve to punish the state’s consumers and businesses.