Threats to major businesses are becoming a key strategy for those who support Jerry Brown’s budget solution. Businesses have been warned quietly that if a June special election does not occur, or if it comes off but the tax extensions fail, there will be renewed efforts to pass an oil severance tax and/or a split roll property tax on commercial property. As reported on the website Educated Guess, under the headline “Watch out, biz, if taxes lose in June,” Senator Joe Simitian more publically suggested oil severance tax or split roll initiatives if the June taxes fail.
Frankly, certain spending interests may proceed with an oil severance tax or split roll whether taxes are passed in June or not. Putting aside the merits of Brown’s tax extension policy for a moment, however, let’s question this strategy of pursuing an oil severance tax or split roll.
What makes the supporters of such taxes so confident that voters will rally around these tax increases?
I expect they figure a knee-jerk reaction to take money from “big, bad oil companies” and “corporations” to help balance the budget will have voters lining up to vote “Yes.” However, a knee-jerk reaction won’t hold up against reality of what these tax increases would mean.
Consider: A tax on oil that will increase what consumers pay at the pump when some prognosticators are predicting $4 or $5 a gallon? Really, that will sell? On top of the price of gas, you can bet there will be an information campaign that will show how such a tax will decrease California oil production and increase foreign oil imports to the state.
Many California oil extractors are small producers who will be greatly affected by a tax increase. Despite the oft-repeated argument that California is the only large oil producing state that does not have an oil severance tax, voters will learn that California oil producers pay plenty of taxes, including certain taxes that other oil producing states do not levy.
As I noted last year, California ranks sixth out of the oil producing states in taxing oil firms, even ahead of well-known oil states as Alaska and Oklahoma. An oil severance tax anywhere near a 10-percent rate will make California oil firms the highest taxed in all the states by a wide margin.
While an oil severance tax would bite consumers as gas costs are nearing new price records, a property tax increase on commercial property would just add to California’s unemployment woes.
With unemployment stubbornly hanging above 12-percent, a split roll increasing business property taxes would only add to the unemployment lines. The idea that a split roll would hurt corporations ignores the fact that the first casualties of a business property tax increase will be small business. And, the biggest losers would be workers looking for jobs.
Small business and individuals own the bulk of business property, and those that rent office and store space are usually under leases that require the renter to pick up any property tax increase.
Increased property taxes will have to be made up somehow by the affected businesses and that undoubtedly would mean in many cases jobs not created or employees laid off. Promoting taxes, which will undercut employment, is a poor move in this economy.
Voters will understand that both an oil severance tax and a split roll property tax will only make it harder for the California economy to rebound. This reality will overwhelm any anticipated knee-jerk vote as it has when similar oil taxes and split roll taxes have made the ballot in the past – and failed.