Prop 87 Causing A Stir During Summer Travel Season

SAN FRANCISCO, Calif. (KCBS)  -- This November, voters will be asked whether or not to tax oil companies that drill in California, in order to help fund the expansion of cleaner fuels.

The Clean Air Initiative would charge oil companies as much as 6% on the price of every barrel of crude oil they pump in California. The money raised would be used to expand alternative energy use and subsidize mass transit.

"What Proposition 87 does is make the oil companies finally pay their fair share of their obscene profits," Yuesef Robb, of the Yes On Proposition 87 campaign, told KCBS Reporter Larry Chiaroni. "Proposition 87 is about reducing our dependance on oil; the result will be less foreign oil.

"This will make oil companies pay, not consumers," he said. "Proposition 87 would make oil companies pay their fair share, and that fair share would support cleaner energy, which would lead to cleaner, cheaper fuels for our cars, and cleaner air for our children."

But Pete Sepp of the National Taxpayers Union would rather see the free marketplace provide the pressure needed to expand alternative energies. Sepp told KCBS's Chiaroni that higher energy prices are already doing that now.

Sepp said it's obviously tempting to beat up on oil companies right now, due to their high profits, but it's nevertheless a bad idea.

"Oil firms will not invest as much money and hire as many people in California, or consumers will somehow wind up paying more for their gasoline at the pump, even though the measure claims, very spuriously, that it can somehow avoid that from happening," Sepp said.

"These kinds of punitive taxes on oil often lead to the same problems: you get less production, higher prices, and perhaps even more dependance on foreign sources for oil," Sepp said.

Robb disagreed. "It violates the basic laws of economics that Proposition 87 could in any way affect the price of gasoline at the pump," he said. "The bottom line is, it's illegal to pass the cost onto consumers, and it's impossible to pass the cost onto consumers."

Robb says the oil companies will take the hit -- not consumers: "Proposition 87 makes it illegal for oil companies to pass their cost onto the consumer," he said.

Severin Borenstein, the Director of the UC Energy Institute, agreed with Robb. "Simple economics says the tax would not be passed through to gas prices, because it's only a tax on California oil, and that oil is a very small part of the world oil market, and California is a big importer of oil."

Sepp believes the current high pump prices are enough to fuel the expansion of alternative energies -- not something as far reaching and punitive as Prop 87. "It simply motivates research and consumer products to come to market that might not otherwise make it to market under lower prices."

Robb says Big Oil is clearly concerned, knowing a pass-through is impossible. "Why are [oil companies] spending up to $50 million to defeat Proposition 87?" Robb asked. "They're doing it because they know they're the ones who are going to pay."

"I'm not sure I would consider this a fair tax, but I do think that the revenue would go towards some programs we desperately do need some funding for," Borenstein said.

"I'm not terribly troubled by this because California has had, historically, very low taxes on oil extractions. This would bring our taxes in line with the taxes in most other states."

Borenstein says, however, Prop 87 may discourage oil companies from drilling in California.

"I would rather see an increase in the gas tax or an increase in income taxes on high wealth people," Borenstein said.

Sepp agreed. "Some say that oil firms would never actually pull out of the state of California, but you can bet that they would think twice about expanding any of their operations in the state if this tax were enacted.

"This will affect California's consumers one way or another," Sepp said. "This initiative says that any of these taxes can't be passed along to consumers. But that's a ridiculous notion. Even the legislative analysts office in taking a look at this measure, has said 'that would be very difficult to enforce.'"

But Borenstein said it would give the state board of equalization the power to launch investigations on whether this tax was in fact being passed through to consumers.

"Setting up this commission would lead to constant investigations, because politicians always are outraged when the price of gasoline goes up," Borenstein said.

The oil tax would stay in place until $4 billion was raised to fund the expansion of alternative fuels and vehicles, and curb the state's thirst for gasoline and diesel fuel by 25%, over the next decade.

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