CALIFORNIA NEEDS AN OIL SEVERANCE TAX

There are 22 major petroleum producing states in the United States. Only one of them - California - does not have a barrel tax on oil as it is pumped out of the ground. At a time when we are facing massive budget cuts to education, mass transit, health and welfare and almost every other significant state program, this giveaway to the oil companies is a luxury we can no longer afford.

In 2007, Alaska Governor Sarah Palin raised her state's tax on oil and gas to a minimum of 25%. Since California imports 15% of its oil from Alaska, we are, in effect, subsidizing Alaskans. Louisiana collects both a severance tax and royalties on oil, adding up to over 22%, not counting corporate and property taxes. California's proposed 9.9% severance tax is not even close.

In fact, the federal government gets a 12% royalty on oil extracted from federal waters just three miles off California shores, while for oil pumped inside the three mile limit, the state of California gets nothing.

Right now, according to the California Tax Reform Association, "California has the lowest total taxes on oil in the country by a substantial margin." A study produced by the non-partisan Legislative Analyst's office in 2008 concluded that the effective corporate tax rate on oil was only about 3%.

Let's remember that up until 30 years ago, California may not have needed a severance tax because it had a property tax on gas and oil. The State Board of Equalization helped cities and counties assess the value of oil reserves for property tax purposes. That ended with Proposition 13. We think it's fair to say that the voters had no intent to eliminate property taxes on oil and gas deposits, but that was the effect of Proposition 13.

Contrary to industry financed scare tactics, an oil severance tax will not drive up the cost of gas at the pump. The oil market is global; the oil market is competitive, and barrel prices will not be affected by a slight change in pricing in California. The oil economist Severin Borenstein of UC Berkeley says California oil refineries buy their oil wherever they can get the lowest price, so California oil producers would be discouraged from raising their prices. That's why a Rand Corporation study found in 1982 that an oil tax cannot be passed on to consumers and will not affect oil production. Virtually all economists agree that the world market sets the price of oil and that local taxes, whether Alaska's 25% or California's proposed 9.9%, are not passed through at the pump.

At a time when we are asking our children and our most vulnerable people to do with less and to do without, it is not too much to ask that oil producers also give something back to help California through difficult times. Exxon Mobil set a record last year as the most profitable American corporation in history, earning more than $45 billion. Chevron made almost $24 billion. The California legislature needs to enact a fair and reasonable tax on oil production; a tax that is already paid by oil producers in every single other oil producing state in the nation -- and the Governor needs to sign it.

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