WSJ: California's Bottomless Tax Well

California's Bottomless Tax Well

WSJ, Page A14
October 23, 2006

California already ranks as one of America's five most taxing states,
but if liberal activists have their way the Golden State will soon be
competing for Number One. Having voted to raise the top income tax
rate on the rich two years ago, Californians are this year being
confronted with a slate of new ballot propositions to raise levies on
motorists, smokers and property owners.

The jewel in this liberal crown is Proposition 87, which would raise
taxes on oil extracted from California by 1.5% to 6%, depending on
the price per barrel -- all in the name of reducing energy
consumption and dependency on foreign oil. Let us run that by you
again: The idea here is to tax California oil in order to get
Californians to use less Saudi oil. Brilliant.

If approved, the law would raise costs on California's oil producers
by as much as $4 billion over the next 10 years. California would
overnight become the state with the highest tax on oil producers in
the U.S. -- which makes as much sense as Vermont levying the highest
tax on maple syrup. Not one penny, by the way, would go to close
Sacramento's enormous government debt burden -- which may rise by
another $40 billion if the multitude of bond initiatives for new
public spending are also approved by voters this November.

Instead, the revenue would finance a new state agency, the Energy
Alternatives Program Authority. The new energy authority would be
responsible for passing out multi-million dollar checks to projects
researching alternative energy. If you think corporate welfare is out
of control in Washington, wait until Sacramento politicians start
passing out these billions in subsidies.

A Law and Economic Consulting Group (LECG) analysis concludes the
bill would in fact increase dependency on foreign oil because the tax
increases the price only on domestic oil. Meanwhile, to make it seem
as if the tax will be paid by "greedy" energy companies rather than
voters, Proposition 87 would make it illegal for producers to pass on
the tax costs to consumers. But wait. The "Yes on 87" lobby also
claims that the law would reduce California oil consumption by 25%.
How does a law that doesn't allow the retail price to rise reduce
gasoline consumption? These are logical niceties that no one much
cares about when fads are in season -- and taxing energy is the
biggest fad of them all these days.

Former President Bill Clinton is starring in a pro-87 TV ad that
began running last week. Al Gore is raising money for the initiative,
alongside Hollywood economists Geena Davis and Julia Roberts. Its
main financial supporter is Hollywood producer Stephen Bing, who is
also rich enough not to care about any increase in energy prices; his
$40 million contribution is believed to be the largest individual
donation to a ballot initiative in history. One co-chairman of the
initiative, Vinod Khosla, a venture capitalist, has contributed $1
million to the campaign. Mr. Khosla happens to own an ethanol plant
outside of Fresno -- just the operation that, who knows, might be
eligible for funding from this new energy welfare fund.

The biggest impact of Proposition 87 would be to make California oil
relatively more expensive to produce than Saudi, or Venezuelan, or
Canadian oil. So if 87 passes, Californians will be approving the
equivalent of a tariff on their own oil. So the tax would actually
make America slightly more, not less, dependent on foreign oil. This
is an energy plan that only Venezuelan strongman Hugo Chavez could love.