Is Big Oil Too Big to Tax in California?

by on February 18, 2013 · 5 comments

in Business, Editor's Picks, Encore, Government, Under the Perfect Sun

oil wellSoon our national political discourse will be dominated by the nightmarish sequester debate with the Republicans’ doomsday austerity strategy being countered by the Democrats’ austerity-lite program that draws from the eternal verity of Simpson-Bowles.  God help us.

Standing in stark contrast to the reigning austerity-lite crowd inside the Democratic Party is perhaps the brightest progressive hope in the country, Senator Elizabeth Warren.  Rather than playing the populist note to bash Republicans and then retreating to safe, chamber of commerce approved positions that put Social Security and Medicare “on the table” like many of her colleagues in the Democratic Party, Warren is consistently taking it to the 1% whenever she can, and she really means it.

In her role on the Senate Banking Committee Warren is skewering the rich and powerful with no apologies.  As a Politico headline puts it, “Warren Strikes Fear Into Wall Street.”  Indeed, in contrast to Obama who has appointed industry lapdogs to oversight positions, Warren is challenging the core values of the financial industry forthrightly stating that “nobody believes that the banks’ books are honest” and observing that the regulations on the industry are too soft and have let them get away with murder.

To her great credit, Warren speaks truth to power by saying things like this at the Democratic Convention: “People feel like the system is rigged against them…. And here’s the painful part: they’re right. The system is rigged. Look around. Oil companies guzzle down billions in subsidies. Billionaires pay lower tax rates than their secretaries. Wall Street C.E.O.’s — the same ones who wrecked our economy and destroyed millions of jobs — still strut around Congress, no shame, demanding favors and acting like we should thank them.”

And this at the Banking Committee Hearing: “Anyone else want to tell me about the last time you took a Wall Street bank to trial?  I just want to note on this: there are District Attorneys and US Attorneys who are out there every day squeezing ordinary citizens on sometimes very thin grounds and taking them to trial in order to ‘make an example’ as they put it… I’m really concerned that too big to fail has turned into too big for trial. That just seems wrong to me.”

We need a lot more of this kind of truth telling from Washington and a lot less Simpson-Bowles rhetoric with subsequent calls for “balance” or “shared sacrifice.”  Unfortunately, however, Warren’s kind of courage is so rare that it seems to be on the endangered species list in D.C.   Instead, the Democratic leadership continues to play on Republican turf starting with compromise positions on everything from Wall Street reform to the sequester debate rather than fighting hard for a solution that does not make middle and working class people pay for a bill that rightly belongs to the robber barons of our era who got off scot free after crashing the economy and running away with the spoils.

Fortunately for us here in California, we have a chance to serve, yet again, as an alternative political universe.  Where the national Democrats are saddled with perhaps the most reactionary House of Representatives in contemporary American history and can plausibly plead pragmatism as they put some of the most important progressive achievements in American history up for grabs, California Democrats have no such dilemma and can completely ignore the Grover Norquist club.

For better or worse, the hard fact for triumphant California Democrats is that with a supermajority in both houses in the state capitol and a sitting Democratic governor, it’s no excuses time.

California Democrats have some good budget news, increased revenue from Proposition 30, and the chance to do more to fund the future of the state without resorting to the politics of austerity.  Still there are those, like Senate pro Tem Darrell Steinberg who have come out of the box timidly, suggesting that, after the passage of Proposition 30, their work on revenue is done: “The voters do not want us to burst out of the gate to approve more taxes.”

Perhaps so if those taxes were to target the majority of voters who have already sacrificed too much during the Great Recession, with many yet to recover.  But that would only be true for regressive taxes, like the sales taxes component of Proposition 30 that should be allowed to expire in four years, but not the taxes on the top 1% that should be made permanent.

Digging a little deeper, the truth of our situation here in California is that despite our current round of good news, Proposition 30 was mostly intended to stop the educational budget bleeding, not to restore education funding to previous levels before the Great Recession and the years of subsequent cuts.  Thus, if we really want to fund our state’s future adequately with regard to education and other vital social services, the revenue question is far from a settled matter.

Fortunately, there are some in the capitol who are ignoring Steinberg’s call for timidity on the revenue front.  Last week State Senators Evans and Leon proposed a new oil severance tax on petroleum pumped from the ground in California which would raise an additional $2 billion annually to pay for higher education and parks.  93% of the revenue would go to the California Community College, California State University, and University of California systems with the remainder going to fund state parks.

This would not be a bold move.  Indeed as Anthony Rubenstein notes, the Golden state stands alone in not taxing oil companies for severing natural resources from state land:

California is the only oil-producing region on the planet where the Oil Companies get away without paying some form of what’s called a severance tax, a royalty paid for the right to “sever” natural resources from the land.  Even oil taken from under federal waters off the California coast is subject to an 18.75% federal royalty, but in California’s territory – nothing.

oil hand printYes, even Sarah Palin’s Alaska and Rick Perry’s Texas have healthy oil severance taxes.  As Senator Evans notes, the oil companies have made trillions from California’s resources so it’s only fair that we benefit from our own collective resources by getting billions back for our schools and parks.

An oil severance tax will not touch the vast majority of California residents, nor would it take jobs out of the state, hurt businesses, or impose an unfair burden on oil companies who are already richer than God and pay ridiculously low property taxes due to the commercial property tax loophole in Proposition 13. And there is absolutely no evidence to suggest that the price will be passed on to consumers at the pump.  Contrary to such claims, the last time there was a federal increase in the severance tax it was doubled in the late 1980s and gas prices actually went down, not up.

Hence, from a policy standpoint, now that there is no recalcitrant minority to stonewall the idea, an oil severance tax should be a no brainer.  Historically, the only opposition to this tax has come from big oil and all the arguments against it are big oil company lies.

With huge new reserves of petroleum recently discovered in California, there will surely be much more money to be made by very large powerful corporate interests.  What remains to be seen is if Californians will receive any benefit at all from their state’s natural resources.  Thus the question for California’s Democratic supermajority is not whether or not “the voters” are at the barricades in defense of corporate profits, but whether or not Steinberg, Brown, and the rest of the Democratic leadership think that big oil is too big to pay their fair share of taxes.

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Jim Miller

Jim Miller, a professor at San Diego City College, is the co-author of Under the Perfect Sun: The San Diego Tourists Never See and Better to Reign in Hell, and author of the novel Drift. His most recent novel on the San Diego free speech fights and the IWW, Flash, is on AK Press.
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{ 4 comments… read them below or add one }

avatar John Lawrence February 18, 2013 at 10:13 am

Norway gets approximately 50% of the profits from oil extracted from its territory. The US gets a relative pittance and CA gets absolutely zero. There’s something wrong here. Norway’s oil money goes into a sovereign wealth fund that pays all of Norway’s pensions. Oil companies have literally been getting away with murder as they extract natural resources owned by the people of the state of California.

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avatar EVmarc February 19, 2013 at 8:53 am

Jim
great connecting the dots
too big to fail,too big to jail, too big to trial, too big to Tax
its all the same guys

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avatar bob dorn February 20, 2013 at 8:47 am

“An oil severance tax will not touch the vast majority of California residents, nor would it take jobs out of the state, hurt businesses, or impose an unfair burden on oil companies who are already richer than God and pay ridiculously low property taxes due to the commercial property tax loophole in Proposition 13.” Big, big, important statement from a serious analyst.
Just like tobacco and alcohol, oil should be taxed as it’s pulled from the mother earth if, for no other reason, we are to get freer of its deadly grip. At least half the revenue from a severance tax ought to go toward the high speed rail project and the development of solar, wind and wave power.

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avatar Geoff Downes February 21, 2013 at 1:59 pm

Alaska is the envy of the nation and the world thanks to its populist Permanent Fund, enshrined into the state constitution, which states that the resources of Alaska belong to the people of Alaska. As Jim correctly states, all oil companies pay a “tax” to the state to extract its oil from state lands. This tax is deposited into the Permanent Fund, and invested. The account currently contains in excess of $30 billion! Quite a rainy day fund!

Each year, in October, 5% of the interest (averaged over the previous five years) is distributed on an equal basis to every man, woman and child in the state. This disbursement, which runs between about $800 and $3300 pp each year, invigorates the economy like you cannot imagine, and gives Alaskans a sense of ownership, pride, and stewardship as well.

Former Governor Palin, who contrary to popular belief was a Good Old Boy-busting progressive force in Alaska before rising to national came, actually greatly increased this tax on the oil companies while in office, which largely accounts for her 90% approval ratings while in office (she now languishes below 30% in Alaska).

So no, taxing oil companies for extracting oil from the ground is far from a radical proposition. They do not own the oil! Why should they get it for free!

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