NCPA - National Center for Policy Analysis

THE WAR ON OIL

October 19, 2006

Proposition 87 is in some ways a murky proposal -- it's not clear exactly how its tax formula would be applied and how much it would raise -- but there's no mystery about its potential impact, says Investor's Business Daily (IBD).

By slapping a substantial new levy on oil being pumped in California, it would reduce the state's oil output.  This is just basic economics: If you want less of something, raise the tax on it.

Applied to California crude, Proposition 87 would have the further effect of increasing demand for imported oil -- exactly what it claims not to be doing.

  • Virtually all the crude extracted in California is refined and consumed in that state, but it's not enough to meet demand.
  • California relies on foreign suppliers, such as Saudi Arabia, for more than 40 percent of its oil.

And what happens when the price of in-state crude suddenly gets kicked up a notch?  The imported crude will get relatively cheaper, and refiners in the state will switch to it.  Result: Imports up, domestic production down, says IBD.

That may be fine for those who don't care about further enriching oil states in the Mideast -- and whoever else in that part of the world gets a hold of our petrodollars.  But then they shouldn't talk about energy security, which (among many other things) requires robust production of oil in the United States for the foreseeable future, says IBD.

Source: "The War On Oil," Investor's Business Daily, October 18, 2006.

 

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