Proposed Tax on Oil, Gas Production is Unnecessary

Robert Gutierrez This commentary was published in The Bakersfield Californian on February 16, 2019.

By CalTax President Robert Gutierrez

Although California’s state budget reserves have grown to a record high of more than $15 billion, new tax proposals keep popping up in Sacramento.

The latest unnecessary tax measure rehashes an old idea that has been rejected by lawmakers and the voters numerous times – an oil and gas severance tax.

Increasing taxes on oil and gas production would be especially damaging to Kern County residents, as past economic studies have shown a severance tax would jeopardize the jobs of those who work in and around the oil and gas industries.

The statewide impact also would be damaging. By increasing the cost of energy production, the tax would lead to higher gasoline prices throughout California – an especially big dent in the wallets of those who drive for a living or are forced to commute long distances to and from jobs.

California already has the highest gasoline tax in the country. With many Californians already struggling to keep up with the high cost of housing, food, medical care, taxes and more, a proposal to raise gas prices is the last thing we need.

The oil tax is in Senate Bill 246 by Sen. Bob Wieckowski, a bankruptcy lawyer who represents the 10th Senate District in Fremont. The bill would impose a new tax at a rate of 10 percent of the average price per barrel of oil in California or 10 percent of the average price per unit of gas.

The good news is that similar proposals have been rejected repeatedly by the Legislature and the voters. In 2006, California voters soundly defeated Proposition 87. In its review of that measure, the nonpartisan Legislative Analyst’s Office noted that oil producers already pay California corporate income tax on profits earned in this state, along with a regulatory fee based on production, annual property tax on the value of oil in the ground, and annual property tax on the value of extraction equipment, including drills and pipelines.

The legislative analyst also noted that the tax would reduce in-state production and investment in new technology, in addition to increasing the cost of petroleum products for consumers.

“This could have a negative impact on the state’s economy,” the analyst accurately concluded.

Adding insult to injury, the tax would reduce local tax revenue in oil-producing counties, making it harder to fund local services for displaced industry employees. How? It would reduce the value of oil in the ground, resulting in lower property taxes on those oil reserves.

Before SB 246 goes any further, taxpayers should contact their state lawmakers. Let them know that California doesn’t need a tax hike that would damage the economy, throw hard-working people into the unemployment line and reduce local revenue.

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