Friday, August 19, 2011




Trying to predict the hottest campaigns over California initiatives many months in advance is a bit like reading tea leaves. But there are some exceptions this summer:

The attempt by to reverse a legislative decision compelling Internet companies to collect sales taxes is already a major fight. And there is no doubt the battle over a nascent ballot measure to impose severance taxes on oil drilled in California will be a costly donnybrook, with conflicting TV commercials airing almost from the moment the initiative qualifies. Volunteers and paid petition circulators have been collecting voter signatures since mid-May and will need to turn in 504,760 valid ones by the end of September to make June 2012 statewide ballot.

Here’s what this fight is about: As the state’s budget crunch escalates, the fact that California is the only oil-producing region in the world where private companies pay no tax for taking oil from the ground stands out more and more.

Almost everything in California is taxed, from gasoline to clothing, from car parts to restaurant meals. Somehow, the oil lobby has been strong enough for long enough to avoid any severance tax in spite of several efforts to impose one. The latest was an initiative that failed in 2006 amid a blitz of oil industry advertising.

Here’s the basic reason why advocates say an oil tax is needed (along with other new state revenues from things like changes in property tax assessment regulations): California is getting many billions of dollars less in both income and capital gains tax revenues than it did before the great stock market and real estate busts of three and four years ago. Yes, there are now tens of thousands fewer state employees than even one year ago and vital services like public universities, schools, highway repairs, fire protection and state parks have already taken huge cuts, with even bigger ones in prospect.

If relatively painless new sources of revenue can be found, items that don’t impact many Californians, they should be exploited.

The argument against, of course, is the usual one against any new tax, even one that doesn’t directly affect consumers: "There is no such thing as a tax on a business," the anti-tax activists often contend. "All so-called business taxes are actually passed along," so that consumers wind up paying even if the levy isn’t applied directly to them.

That generic anti-tax argument doesn’t apply significantly to an oil severance levy, mostly because oil companies usually lump the taxes they pay into their overall expenses, and charge them to their customers worldwide, a practice that won’t change if this measure wins, even though it specifically bans pass-throughs of the severance levy to refiners, gas stations or consumers.

The bite from the proposed 15 percent levy on the value of each barrel of oil extracted from beneath California lands or waters would amount to no more than a small fraction of a penny per gallon when applied to the worldwide sales of companies like Chevron and Shell. So Californians would pay very little if they assessed this tax, while it would produce between $2 billion and $3 billion yearly, mostly earmarked for education.

Similarly, Californians pay a fraction of a cent per gallon now for the 25 percent tax Alaska applies to its oil, a levy first applied while Republican Sarah Palin was governor there. Why should Californians in essence pay taxes to Alaska, while no one anywhere pays severance tax for California oil?

Oil companies, of course, care little for that logic. They, along with the Kansas-based oil baron Koch (pronounced “coke”) brothers who also are prime funders of the ultra-conservative Tea Party movement, will put tens of millions of dollars into the campaign against the proposed severance tax. The measure will be backed by labor unions, education groups and environmentalists.

The oil companies will also label severance taxes a “job killer,” a tag businesses regularly try to hang on proposals they don’t like. They will ignore a UC Berkeley study funded by the non-partisan California Endowment which found the levy would save several thousands of jobs statewide while causing a maximum of 300 job losses in oil-related businesses.

All of which means there will be plenty of arguing over this measure, and plenty of money to air all the arguments. Which makes it all but certain the oil severance tax will become a centerpiece of the next election, with every major candidate forced take a stand on it.

Email Thomas Elias at His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For

more Elias columns, visit

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