For all the talk about California as a high-tax place, the state is unique among America's oil-producing states for not having what is known as a severance tax -- a levy on the oil and minerals taken out of the ground. What explains this? LA was once a leading oil town (by some estimates, a quarter of the world's crude came from Southern California at one point in the early 20th century), and its barons held considerable sway. Since then, generations of oil industry lobbyists have fought off the severance tax in Sacramento.
But circumstances are now conspiring to put the oil tax on the table. With the state government desperate for funds, legislators are eyeing a severance tax, perhaps as a way to restore recent cuts to the public university systems. Gov. Arnold Schwarzenegger once received strong support from oil companies. But he has declared war on oil companies that are backing a November ballot initiative to suspend his signature legislative achievement, the state's climate change law. And in previous budget negotiations, the governor had floated the possibility of a severance tax of about 9 percent as a way to raise $1.2 billion for the state.
The BP spill in the Gulf of Mexico may prove to be the final straw. On Monday, Schwarzenegger all but killed off a plan to renew off-shorre drilling near Santa Barbara because, he explained, any new jobs and economic growth revenues were not worth the risk of a Gulf-style spill here. Look for the spill to be exploited by supporters of establishing a severance tax, and with good reason. The spill is a reminder that oil production comes with all sorts of costs and risks for the public. And it is risky activities that are most deserving of taxation.