There they go again. Despite repeated defeats in the state legislature and at the ballot box, the tax-and-spenders are once more attempting to damage California’s economy and kill California jobs with an oil extraction tax, also known as a severance tax.
SB 241 (Evans) is pretty much a re-run of previous failed bills and ballot initiatives that sought to extract – some would say extort – billions of dollars from California oil producers, for the “privilege” of providing the very commodity that keeps our economy moving, keeps thousands of workers employed, and already contributes disproportionately to the government’s coffers.
This latest incarnation would require a tribute to the state of 9.5% of the value of every barrel of oil produced here. Like many that came before it, SB 241 would earmark most of these “revenues” for higher education, but this time also a little for state parks.
The author and other proponents claim that this raid on an essential California industry is justified because our state is the only one that doesn’t have an extraction tax (California does have a small extraction tax that pays for the operation of the Division of Oil, Gas & Geothermal Resources). What they don’t want you to know is California oil companies pay some of the highest income, property, and excise taxes in the nation. SB 241 would make California oil companies the highest taxed in the country.
And contrary to the notion that those companies somehow access oil here for free, California producers pay millions in lease payments and royalties to the state and federal governments and to individual landowners.
Finally, severance tax promoters like to point to Alaska as proof that a state can have sky-high taxes on oil with no negative impacts. They should check out what just happened in the Alaska Legislature: both houses passed, and the governor has agreed to sign, a bill that would cut oil extraction taxes in order to reverse a trend of decreased production and encourage more oil company investment in that state. So much for a free government lunch.
The reality for California is that a study of a similar proposal a while back found that a 9.9% oil severance tax would kill about 10,000 thousand California jobs, increase our dependence on imported oil, drive fuel costs up, and cost local governments millions in property tax revenues upon which their K-12 schools rely.
An even starker reality is that California is on the brink of an economic bonanza from development of the 15 billion barrels of oil just waiting to be produced in the Monterey Shale formation, which has the potential to create tens of thousands of jobs and generate billions of dollars in new revenues for the state and local governments.
Nothing dampens investment in new energy production like a multi-billion dollar tax on top of the disproportionately high taxes the oil industry already pays in California. Talk about snatching defeat from the jaws of economic victory!
California lawmakers have two lessons they should keep in mind when considering SB 241. First, previous legislatures and state and local voters have consistently rejected punitive oil severance taxes because they don’t make economic sense. And Alaska, the poster child for high oil taxes, has just gone the opposite direction by actually cutting oil taxes to protect their economy.
Hopefully, the good folks in the state capitol will take these real-life lessons to heart and send SB 241 quickly and deservedly to the ash heap of legislative history. California’s workers, consumers and economy will thank them.