Supermajority gives California Dems a chance to finish what they started

Oil Severance Tax

Though more oil is produced in California than in any state except for Alaska and Texas, the state has never implemented an oil severance tax, a tax on the volume or value of oil extracted that has long been in place in many oil-producing states, including Alaska, Florida, Mississippi, Oklahoma, Oregon, Texas, and Wyoming.

According to Jonathan Zasloff, a law professor at the University of California Los Angeles who has written about the oil severance tax, an oil severance tax would be an appealing way to raise revenue because it is targeted (that is, borne by a small number of taxpayers). Additionally, because the market for oil is global, economists believe that it is unlikely that consumers in California would see any increase in prices at the pump.

Zasloff said that the only entities likely to be negatively affected by an oil severance tax are the oil companies themselves, and for that reason, they have spent millions of dollars to defeat previous efforts to impose one. In the latest attempt, a 2006 ballot initiative that would have imposed a maximum tax of 6 percent, the industry spent nearly $100 million in opposition, and the initiative failed narrowly.

Several bills have been proposed in the legislature since then, all of them requiring a supermajority to pass. The most recent proposed bill was introduced by Assembly Member Warren Furtutani in 2011. The bill would have imposed a tax of 12.5 percent on the value of oil produced in California and dedicate the funds to the state’s higher education system. The bill eventually died in the Revenue and Taxation Committee because, according to one staff member, it was apparent that no Republicans would vote for it.

There has been some revived interest in an oil severance tax recently, as several newly elected Assembly Members and Senators campaigned on the issue. One of them was State Senator Hannah-Beth Jackson.

“We have to remember that Proposition 30” — the recently passed ballot initiative that raised income and sales taxes — “only stopped the bleeding,” Jackson told Remapping Debate. “It doesn’t give us enough revenue to undo any of the damage that has been done to the state’s education system during the recession.”

Jackson said that she was hopeful that the legislature would consider a production tax in the next session.