Over the weekend there was a virtual push among college teachers and students to get Californians to sign up for the facebook group “Fair Share for Fair Tuition”.

The group, which currently has 6,317 fans, is in support of California Assembly Bill 656.  AB 656 is a bill proposed by Alberto Torrico which will add 12.5% in taxes to all oil pumped out of the ground in California.

The revenue generated from these taxes is estimated to add between $1,000,000,000 and $1,500,000,000 to California college budgets.

Money raised from this new tax would go to support higher education systems in California and includes funding for the Cal-State, University of California, and Junior College systems.

However, like many tax proposals, ‘free’ money for our education system is only part of the equation and is very misleading.

First of all, fundamentally speaking, what right does the Government have to arbitrarily select an industry and decide to legally gouge it for more taxes?

Currently, oil companies already pay real-estate tax on the property they drill into, tax on the equipment used for the extraction of oil, and taxes on the revenue produced from oil sold in California.  In addition, oil dependent businesses like gas stations pay business tax on the revenue generated by providing refined oil and gasoline to the public.  Furthermore, a simple google search will show that a large percentage of what every Californian pays at the gas pump is actually the cost of local, state, and federal taxes levied on each gallon of gas.

And speaking of Google… for fiscal year 2009 Google is one of the many California based companies which has netted a great profit margin than any oil company in the world.  Why doesn’t California legislators go after Google for more of their profits?

It could even be argued that high tech fields where Google is the industry leader are the field most benefited by higher education.

Why not pass this tax onto those industries who benefit most from a highly educated work force?

Another concern of what can happen if this tax is passed is currently being voice by the residents of Kern County.

Citizens of Kern County are concerned that this tax could “deal a crippling blow not only to the oil industry in western Kern County but also to the county’s ability to deliver essential services to its citizens”.

At a recent press conference, Kern County Board of Supervisors Chairman Ray Watson stated, “This tax is aimed right at the heart of our economy,”

Watson further commented, “When is the [state] legislature going to learn that you can’t solve the state’s deficit by raising taxes that eliminate jobs?”

Watson and Les Clark Jr., executive vice president of the Independent Oil Producers Agency, summarized some of the affects of this tax bill:

• Property values and tax revenue from oil producing real-estate and surrounding areas would drop dramatically
• Increased taxes would force several oil producing companies to simply shut down
• In Kern County alone the job losses would affect approximately 7,000 full time tax paying workers
• Lack of tax revenue from closed business would result in closure or cancellation of government services

What is most confusing about this bill is the fact that oil companies historically run at profit margins around 9%.  Raising taxes on oil production by 12.5% will do little or nothing to cut into these profits, it will simply cause oil companies to pass the cost onto the consumer or shut-down business in California all together.

The State of California has made this mistake over and over again.  Budgets, bond measures, and spending habits have been created based on revenue that is supposed to be generated by new taxes.  However, like the tobacco tax has shown us, you can not raise costs (on the sale of tobacco or production oil) and expect the supply or the demand to remain constant.

In the late 1990’s and early 2000’s California sold state bonds by the billions and guaranteed their repayment by drastically raising taxes on cigarettes and cigars.  However, what they forgot to factor in was that higher priced tobacco would drive down over-all tobacco sales and actually decrease tax revenue.

Currently California is on the hook for millions in “Tobacco Bonds” and is not sure how to repay them.

Now the California Legislature is trying to do the same thing with oil production without thinking about the long term ramifications.  Knee jerk reactions to fiscal challenges and new taxation without a long term plan helped push California to the verge of bankruptcy in 2009.  Shouldn’t the legislature be required to examine the full ramification of tax increases before arbitrarily going after one of the few productive businesses left in California.