Opinion: Increasing California Oil and Gas Taxes Would Be a Good Idea

Oil from the Refugio Oil Spill. 19 May 2015. Courtesy of Author Zackmann08, Wikimedia Commons.

Last week’s Santa Barbara oil spill dumped approximately 100,000 gallons of oil onto the pristine California coastline. Compared to Santa Barbara’s 1969 oil spill, when a damaged oil rig leaked 3,300,000 gallons, the latest spill seems relatively small. However, it highlights the fact that spills happen and will keep happening as long as we have an oil based economy.

In light of this, the minimal taxes on oil and gas in CA look ridiculous. CA is currently the only major oil producing state without an oil extraction tax. Even Texas and Alaska have one.

There are two reasons these taxes remain low or non-existent in a state with an otherwise golden environmental record:

1) The 67% majority required to pass new taxes in CA
2) The potential impact of a new tax on low and middle class Californians

1) The 67% majority required to pass new taxes in CA
A 2/3 majority vote of the absolute number of legislators in both houses of the state legislature is still necessary to raise or lower any tax level in California. We have Prop 13 to thank for that. Political Science professors and other reformists have oft cited this as a key policy area to fix, calling it one example of the many ways the CA tax code is outdated (like the fact that we don’t tax services such as the hair stylist or accountants).

Professor Anagnoson of California State University Los Angeles finished his 2008 book “Governing California In The Twenty-First Century” by expounding on this point:

“It is too difficult to raise taxes, at a two-thirds majority of the legislature. The two-thirds should be lowered to somewhere in the 50 to 60 percent range, by which you would need a supermajority to take such a serious action, but a minority of just a third could no longer hamstring the legislature.”

Revising the 2/3 requirement would also make it much easier to increase the gas tax or finally implement an oil extraction tax.

Should the Majority Required to Change Taxes in CA Be Reduced to 50-60%?

California’s tax code is outdated because of restrictions that make it extremely difficult to add, remove or amend any tax. Prop 13 requires a 2/3 majority vote of the absolute number of legislators in both houses of the state legislature to raise or lower any tax level. This makes it possible for a minority to hold tax reform of any kind hostage. Reducing the majority percentage required is the best thing CA could do to enable tax reform.



2) The potential impact of a new tax on low and middle class Californians
The other reason these taxes have been held up – the potential impact of a new tax on low and middle class Californians – can be solved with well designed public policy. The argument goes like this:

Increasing the gas tax (or implementing an oil extraction tax) puts a disproportionate burden on the lower and middle class for whom fuel is a large part of the monthly budget.

Admittedly, this is true given the way past proposals for gas taxes were written. Take for example SB-1017 Education finance: oil and gas severance tax, a bill proposed in the 2013/2014 legislative session. It would have taxed oil extraction to fund education. While funding education is a noble cause, it would indeed fall disproportionately on the low and middle class..

The solution is to give all of the proceeds of these taxes back to people in the form of refunds. The efficacy of these taxes is in putting consumer purchasing power behind sustainable technologies, not in increasing revenues for the state.

Increased gas prices incentivize consumers, people like you and me, to spend their money on electric cars, public transit, bicycles and other ways of getting around that avoid the increased fuel prices. This sustainable behavior change and corresponding shift away from a fossil fuel based economy is the goal of the tax, not raising money for government programs.

Should CA Implement an Oil and Gas Extraction Tax?

CA is currently the only major oil producing state without an oil and gas extraction tax. This initiative would tax oil and gas extraction in increasing amounts annually and reaching a maximum in 20 years. All proceeds from the tax would be used to fund tax breaks for low and middle class Californians. The goal of the initiative is to have an effectively non-existent new tax burden on consumers/California residents while incentivizing a shift to sustainable forms of transportation, heating, cooking, etc.



Avoiding tax measures like these will only lead to more of the same: environmental degradation. Oil spills that wreck havoc on our marine ecosystems or climate change which is causing one of the worst droughts in California’s history. Not surprisingly, the biggest losers from ecological damage will be poor and middle class people: fisherman, farmers, and homeowners who can’t afford to move or face higher maintenance costs.

California has a historic opportunity to do something smart for its people and its environment by implementing an oil extraction tax and increasing the gas tax. Let’s turn this disaster into a win and act now.

About the Author: Manu Koenig is an entrepreneur and lifelong California resident. He helped found Civinomics to increase public participation in the civic process and sits on the Board of Digital NEST, an organization dedicated to technology education for youth in underserved communities. He graduated from Stanford in 2007.

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