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Opinion: Three times not a charm for oil severance tax: Thousands of jobs threatened

It is tough in any economic climate to make a go of it as a small business. In this economy, the odds are even worse. That’s why small business bankruptcies jumped 81 percent last year.

Not helping were state tax increases of $12.5 billion.  Taking that money out of the economy means there is even less for struggling businesses to earn.  Less business means less hiring and more layoffs among the companies that do survive.

Small businesses play a huge role in our employment picture since they create more than half of all new jobs in California. Small businesses have had a tough time helping reduce the state’s painful 12.4 percent unemployment rate, a level not seen since the Great Depression.

Taxes that are among the highest in the nation and a business climate rated dead last are cited by economists and business leaders as reasons California lags behind the rest of the country in pulling out of the downturn.

It is in this setting that we are being bombarded with proposals for an oil severance tax. No less than three major bills under Legislative consideration contain oil severance tax proposals.

The plan is to charge a percentage of the price of each barrel of oil pumped from California’s ground.

This new tax will increase the cost of oil production in California which will result in less of it. In turn that means a greater reliance on foreign oil.  That not only forces up costs at the gas pump, it provides more revenue for some unfriendly foreign regimes and requires lots of greenhouse gas emissions to transport to the Golden State.

Even more important though is the fact that a new severance tax on oil production will eliminate almost 10,000 California jobs.   

An economic study of a similar measure, conducted by a team including a former California legislative analyst, concluded that 9,850 jobs would disappear due to a new oil severance tax. That’s 9,850 families taking unemployment checks instead of paying taxes. That’s 9,850 families without health insurance and other benefits.  

Plus that means 9,850 workers who won’t be the much-needed consumer for thousands of small businesses throughout the state.  This is how higher taxes impact all of us.
Other consequences include the fact that an oil severance tax would bring a reduction in property taxes to oil-producing counties.  If you are fortunate enough to own land with oil underneath it, the value of that oil is included when figuring your property taxes.

An oil severance tax would make that oil less valuable and drive down property taxes that go to schools, local roads, law enforcement and public safety.     

There is so much misinformation being spread by those pushing a severance tax that it’s hard to get your head around all of it.  But it’s important to know the truth, so let’s take the facts one by one.

FALSE: California is the only oil-producing state that doesn’t have a severance tax. Pennsylvania doesn’t have a severance tax.  But even that misses the point. California has myriad taxes levied against oil companies, some that other states don’t have.  Texas has no corporate income tax. Most states don’t force corporations to pay sales tax when buying manufacturing equipment. California does both. Adding a severance tax would make California the state with the highest tax burden on the oil industry.

FALSE: A severance tax won’t drive gas prices higher because oil companies will be legally prohibited from passing the cost of a severance tax on to consumers, and anyway, the price of oil is set on the world market and not impacted by just one state’s tax structure.  Gas prices will go up because regional market conditions do influence regional gas prices.  The higher costs of importing oil can be lawfully passed on to consumers.  That’s why the aforementioned study found “consumers will pay higher gasoline prices as a result of the severance tax.”

FALSE: Oil companies are not paying their fair share. While the term “fair” is certainly open to various opinions, there is no doubt that oil companies in California are paying some of the highest taxes in the country.  That includes a corporate income tax ranked number one and as mentioned above, several taxes other states don’t have.

FALSE: A severance tax will save higher education or California’s budget. It doesn’t make logical sense to pull the rug out from underneath almost 10,000 Californians to support any specific plan.

But enough with good old facts and figures. It should gall you that when he was asked about the human cost of an oil severance tax, proponent Assemblyman Alberto Torrico, D-Newark, said, “I’m willing to cost 9,000 jobs.”

We can’t afford to sacrifice anyone’s job. If you agree, let your Assembly representative and Senator know that an oil severance tax is exactly the wrong prescription for what ails California.


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