Daniel Weintraub: Going after the oil companies still targets average taxpayers

As the Oscar-nominated film "There Will be Blood" chronicles well, the discovery of oil in Kern County in the late 19th century triggered a rush of greed, chicanery and, sometimes, violence in the region. Oil made the world go 'round, and the people chasing after it were not always the most savory of characters.

A century later, oil still gets Californians' blood boiling. Having built a society that is utterly dependent upon the stuff, we still hate it. Oil is dirty, ugly and bad for you. When burned, it pollutes the air and, best we can tell, is warming the earth. Our thirst for oil has entangled us in Middle East affairs we would be better off avoiding.

But oil also has made us fabulously mobile, transforming our society from a difficult agrarian existence to one in which we can drive across the state or fly around the world in a day. That mobility has helped create a dynamic economy that few of us would want to trade for a hard, monotonous life on the farm.

Oil prices – and oil company profits – also seem to hold a special grip on our psyches. Because oil is so critical to our daily existence, we feel the pain acutely when the price goes up, and we feel more outrage when we hear about the profits companies make from its sale.

In this outrage, California's politicians, or at least those in the Democratic Party, see opportunity. With the state's budget perpetually in deficit, they need to find more money to finance the programs they support and the voters seem to want. One place to find that money: oil.

California is the only one of the 22 oil-producing states that does not impose a significant severance tax on its extraction – a fee for the privilege of pulling it out of the ground. California generally has higher income taxes and taxes on corporate profits than other states, but the lack of a severance tax, a special tax on oil, grates. They must be getting away with something.

Last week, Assembly Speaker Fabian Núñez proposed a new tax of 6 percent on oil produced in California. For good measure, Núñez also asked for a "windfall profits tax," a 2 percent surcharge on oil-related income above $10 million. Together, Núñez estimates, the two taxes would generate more than $1 billion a year, which he would dedicate to the education budget.

A united front of Republicans blocked the proposal in the Assembly. Since the California Constitution requires a two-thirds majority of the Legislature to raise taxes, some Republican votes are needed to pass the bill. But the idea is not dead. Núñez promises to keep pushing it.

The oil-tax idea embodies all the contradictions that oil has always conjured up. It is difficult, for example, to think of another California-based industry that legislators would target in this way. The wine industry is untouchable, everyone's favorite symbol of California's international cachet. Hollywood is hugely popular in the Capitol, with legislators trying to pass special tax breaks to make it more profitable, not less. Then there is the Silicon Valley. Can you imagine Núñez proposing a special tax on computer chip production?

But as environmental policy, Democrats have long tried to make oil less viable as an energy source, so higher taxes on its production might serve that end. Yet this works only if the taxes are passed through to consumers, who would then use less oil. And Núñez argues, correctly, that there is little evidence that a severance tax would raise prices at the pump. Oil prices are set on the international market, and a California tax would hardly budge those dynamics. Just in case, the proposal included a provision prohibiting the oil companies from passing the tax on to the rest of us, an impossible-to-enforce idea that was either a political fig leaf or a demonstration of economic naiveté.

The oil tax would, however, encourage more imports – even though this is another practice the Democrats say is bad for us. Most of the oil we don't produce for ourselves we get from Alaska, the Middle East or other regions of the world. The more expensive California oil is to obtain, the more attractive those other sources become. California production already has declined by 23 percent in the past decade. The Núñez proposal would accelerate this trend.

The oil companies make easy targets. But since most of them are publicly traded firms, their profits eventually accrue to their shareholders, including the pension funds that will provide a secure retirement for millions of middle-income workers.

All taxes, even those nominally assessed on business, are eventually paid by individuals in one form or another. So if the goal is to raise money to pay for broad-based services, it would be far more efficient – and transparent – to simply tax individuals directly. But that wouldn't be nearly as much fun as going after the oil companies.

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