More fracking would increase CA tax revenue

Feb. 19, 2013

By Wayne Lusvardi

Is California the only state that does not have an oil and gas tax? This is what some politicians and advocates want you to believe and the mainstream media fail to fact check.  But is it true?

* On Feb. 13, Capital Public Radio did not contest the statement of state Senator Noreen Evans, D-Santa Rosa, that “an oil severance tax is long overdue” and “California is the only oil-producing state in the nation that does not have this tax.”

* On Jan. 28, University of California, Berkeley student Harold Tibbetts kicked off a campaign to put before voters and initiative to for a 9.5 percent “severance tax on oil and gas extracted in California” to generate $2.5 billion in funds for higher education, state parks and county governments.  Tibbetts supports the California Modernization and Economic Development Act.

* John Ellwood, a professor at U.C. Berkeley’s School of Public Policy reacted that he was in favor of the proposal, but did not expect the initiative to succeed due to the political strength of oil producers.

All the above failed to tell the public that California already levies sales and corporate taxes on oil and gas in place of an “oil severance tax.”  And California is not the only state which, technically, lacks an oil severance tax.  Some states tax crude oil and gas through a property tax, others by a sales tax, some by an income tax, some via an oil severance tax and many others by a mix of taxes.

California’s corporate income tax rate is a flat 8.84 percent.  The California sales tax base rate is 7.5 percent. That is a combined 16.34 percent tax rate.  Moreover, Gov. Jerry Brown’s new 0.25 percent increase to the based sales and use tax rate applies to the sale of diesel fuel, thus increasing that tax rate to 9.67 percent.

By comparison, Texas levies a 7.5 percent gas severance tax and an aggregate 9.2 percent oil severance and condensate tax for a combined tax rate of 16.7 percent, only a little higher.

California Has Highest Oil & Gas Tax Collection

According to a study conducted by economists William Hamm and Jose Alberro, if California were to add a 9.5 percent tax on its existing oil and gas tax rates, this would result in California having a tax rate 40 percent higher than the state with the highest tax, Wyoming; and more than double California’s existing oil and gas tax-rate structure.

This study also found that, although California has the lowest oil severance tax collections (zero), it has the highest corporate oil tax collections of all states (about 15 percent higher than the next highest state of Louisiana). There is a reason California has no “oil severance tax.” It is because it collects much, much more in taxes through using a mix of sales and corporate taxes.  California already maxes taxes on oil and gas. Here is a chart from the study:

The main problem with oil and gas tax revenues is that California doesn’t extract enough petroleum resources. It is the volume of oil and gas production that is the problem, not the tax rate per se. More petroleum production by itself would bring more tax revenue.

This is partly because oil and gas extraction permits fell by 90 percent in California up through 2011 due to a bureaucratic logjam created by the Obama Administration’s restrictions on the extraction of oil and gas by fracking — the hydraulic fracturing of rock.

To answer Evans’ misleading accusation, California needs to “frack,” not tax.