Corporatism in Action: Why an oil company backs Jerry Brown's tax plan
By our good friend Chuck DeVore:
Why would Occidental Petroleum, America's fourth-largest oil company, donate $250,000 to a tax-hiking ballot initiative in California?
California's expansive state government has found itself chronically short of funds as much due to a 31 percent boost in state spending from 2003-07 as to the economic slowdown. As a consequence, it may seem that tax-increase proposals have outnumbered jobs created in recent years.
Many big corporations backed Gov. Arnold Schwarzenegger's $24 billion tax increase in 2009, reasoning that the taxes proposed beat the alternative: hiking taxes on business or the state's oil industry.
California has the third-largest proven U.S. oil reserves, with the highest gas tax and the fifth-highest overall tax on the oil industry. But, taking more from California's oil producers is a perennial favorite as it satisfies two important constituencies: environmentalists and consumers of government services.
Squeezing tax revenue out of oil isn't that simple, however. California crude is heavy and sulfur-laden, making it more costly to refine and thus discounting its value by about 10 percent. A California oil "extraction tax" would act to destroy oil reserves by making locally produced oil more costly to recover, inadvertently boosting foreign oil, which California can't tax. As a result, the value of Occidental's California oil reserves drop to the extent taxed. The power to tax is the power to destroy. What you tax, you get less of.
With this in mind, Occidental's $250,000 contribution to Gov. Jerry Brown's $9 billion tax hike initiative for the November ballot looks less like civic-minded corporate charity and more like a prudent investment. Especially since higher oil taxes would reduce the value of Occidental's California oil reserves by hundreds of millions of dollars. But there's another rationale for Occidental's assistance to the governor.
Last October, Occidental Petroleum's CEO cited the snail's pace of drilling-permit approvals in California as the reason for a slowdown in Occidental's oil and natural-gas production. California granted 14 drilling permits out of 199 applications received through October 2011, a 7 percent rate. In 2009, 37 of 52 were granted, 71 percent.
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