WHY WE SHOULD HAVE AN OIL SEVERANCE TAX

By Paul R. Garver

Unlike most taxes, an oil severance tax will directly boost California's economy. We should institute it without delay.

Of the twenty states in the US that produce oil, California is the third most productive after Alaska and Texas. Texas and Alaska generate huge amounts of revenue by taxing oil. Texas runs its university system on it and Alaska actually pays each resident an annual dividend generated from this tax. In 2007, under Sarah Palin, Alaska raised its tax to 25%. At that rate, California would generate over 7 billion dollars!

All citizens of California should be outraged we have been giving Big Oil a free ride, especially in the midst of the terrible economic crisis we have all been suffering through. Our outrage should be even greater if we realize that it's not just every other state that taxes oil this way, nowhere else on the planet can a multinational oil company pump oil without paying a tax on the amount pumped.

So, why aren't we doing this? The main arguments offered against this tax are that it would raise the price of oil and cost jobs. It is easy to show that both these arguments are false.

Oil is priced on the world market making this tax unique in not being able to be effectively passed on. To see why this is so, let's take the current world market price of about 80 dollars a barrel and assume California institutes a 25 percent tax (like Alaska's). If the multinational oil companies tried to add that on and charge 100 dollars a barrel, refiners wouldn't buy it. Instead they'd buy replacement oil from Alaska or Texas where they could pay the world market price of 80 dollars. What this means is that the oil companies would have to absorb the tax and pay it out of their profits. Before you begin crying for them, remember, the multinational oil companies are the most profitable industries in the world. Last year Exxon alone had a profit of over 45 billion dollars.

Let's next take on the argument that this would cost California jobs. In fact, it would do the opposite. Since this tax will be paid by the multinational oil companies and not by Californians, it will bring in several billion new dollars from outside the state each year. This will increase California's overall economic activity and create tens of thousands of new jobs.

If you do an internet search you'll find some other arguments against an oil severance tax. Many are laughable. For example, it's argued that since oil fluctuates so much in price we should forgo this tax because our revenues would fluctuate too much. Come on! Would you pass up a job that paid you three million today because next year you might only get one million? And let's not forget, oil's long run price change is up. The oil interests also argue that because it would cut into their profits they would pay less income tax. So we're supposed to give up three billion of well head tax because we would lose 500 million in corporate income tax? How stupid do they think we are? The unpleasant truth is that Big Oil and the politicians in their pockets have been fooling us with these phony arguments for over one hundred years. Let's finally get smart and institute an Oil Severance Tax NOW!!