The people calling for a new tax on California oil production would like you to believe that the tax would magically raise billions of dollars a year without having any negative impacts like massive job losses. When they market this miracle budget cure, they typically avoid policy issues and instead try to misdirect our attention with assertions that “California is the only oil-producing state without a severance tax” and “Sarah Palin approved a severance tax when she was governor of Alaska.”
Let’s take a look at the first claim first. California oil companies pay the state’s income tax, a per-barrel regulatory fee, personal property tax on equipment, sales tax on equipment (at the highest sales tax rate in the country) and annual property tax on the value of unrecovered oil in the ground.
California’s total taxes on oil production are significant – an analysis of all the taxes paid by oil producers in the top 10 oil-producing states shows that California is slightly higher than several other states, including Alaska, and only slightly lower than Texas. Adding a severance tax would give California the dubious distinction of being the highest-taxing state on oil production.
What would this mean for California? To answer that, let’s take a look at what has happened in Alaska since oil tax increases were approved by Governor Palin.
Earlier this year, an Alaska lawmaker proposed a 10-year suspension of the severance tax in order to stimulate economic activity. The Associated Press reported, “The idea of a severance tax holiday … comes amid forecasts of slumping North Slope oil production and concerns about future revenue.”
This echoes the Fraser Institute’s annual survey of where petroleum company officials are most inclined – and least inclined – to invest. The institute reported that Alaska climbed the “worst jurisdictions for investments” chart after the tax was enacted, from the 41st worst out of 54 foreign and domestic jurisdictions in 2007 to the 22nd worst out of 81 jurisdictions surveyed in 2008. (California was the 11th worst in 2008, even without a severance tax to further chase away investors.)
In July 2008, the Seattle Times reported that in Alaska, “The tax already has affected investment decisions.” As a result of the tax, the paper explained, companies delayed development in the western region of the North Slope and scrapped a $300 million refinery project. “Investment dollars are flowing instead to places that have a better return,” the paper said.
Is this the tax policy that Californians want to emulate? With nearly 2.3 million Californians out of work, do we want to encourage the exodus of jobs out of this state? And are we so callous that we would put these workers’ livelihood at risk when countless audits and media reports reveal that the state is not doing enough to eliminate the type of waste, fraud and mismanagement that, according to a California Taxpayers’ Association report, cost the state $18.9 billion over the last 10 years?
People who work in the oil fields realize how devastating an oil production tax would be to California’s economy. In January, oil workers packed a legislative hearing room and a nearby hallway, trying to let lawmakers know that their working-class jobs could be lost if a severance tax is approved.
The co-owner of an oilfield services company that employs 57 full-time workers and 13 temporary employees told lawmakers that the tax would put many of the jobs – and possibly the entire company – at risk. A small oil producer in Taft said he would be forced to lay off 10 employees and would invest future money in lower-tax states where opportunities are “far superior.”
Many of the workers were from Kern County, where the unemployment rate is now near 16 percent. If these workers are forced to join the unemployment line, many other local industries – from restaurants to grocery stores to newspapers – will be negatively impacted. At the same time, a new oil severance tax would actually reduce the county’s property tax revenue by an estimated $16 million a year, since it would reduce the value of the oil in the ground.
Oil tax proposals have been analyzed by Dr. Jose Alberro, an international expert on petroleum and valuation, and Dr. William Hamm, who served as California’s non-partisan legislative analyst, and the two experts estimated that statewide, nearly 10,000 jobs would be lost if California added a severance tax on top of its existing taxes.
The same pro-tax groups that want us to follow Sarah Palin’s lead say that we should ignore these experts. Apparently, they are willing to gamble with the jobs of 10,000 Californians. They also are willing to hit consumers with the higher gas prices that would result from a severance tax, along with the increased costs of goods and services that would occur as transportation costs increased.
Taxpayers should reject this risky approach, and should support job creation to spur the economy, not this new tax that would take us in exactly the wrong direction.