Via the CSM: Californians weigh a new tax on oil companies

As Los Angeles motorist Jill Cantrell removes the pump nozzle from her Honda Civic gas tank, she spouts out two figures: “$56 for a gas tank for me and $78 billion in profits last year for the oil companies,” she says. “I’m livid.”How many other Californians are angry about gasoline prices – and ready for their state to take action – will be clear this November, when voters decide whether to levy a new tax on oil companies that drill in California and use the money for in-state development of alternative fuels.

Of course, if she votes a new tax on oil companies, she can count on even more to fill up her Civic.

Supposedly this would not happen, but precisely how that feat could be managed is beyond me–price is a slippery issue and not as easily regulated as this would suggest:

Prop. 87 aims to raise and spend $4 billion on alternative-fuel programs over time, with the goal of cutting Californians’ use of gasoline and diesel 25 percent by 2024. It also would prohibit oil companies from simply raising prices at the pump to cover their costs of the new tax.

These kind of initiatives always sounds good: punish those evil oil companies and get free alternative energy in the process! However, it doesn’t pan out that way:

But is it possible, really, to prevent oil companies from passing on to consumers the added tax, as the initiative proposes? Proponents of Prop. 87 say yes, citing the state attorney general’s comments that it would be possible. Some economists, meanwhile, say the price at the pump is likely to rise for reasons beyond Prop. 87.

“You cannot legislate away the laws of economics any more than you legislate away the laws of gravity,” says Benjamin Powell, director of the Center on Entrepreneurial Innovation at the Independent Institute, a California-based think tank. A tax on oil production, he says, will result in less drilling activity, making California oil more scarce and leading refineries here to import oil from elsewhere. Added dependence on costlier foreign oil – often because of added transportation or refining costs – is inevitable, he says.