(March 13, 2008) Legislation that would have increased prices at the gas pump for consumers and businesses failed to pass the Assembly yesterday.

The California Chamber of Commerce opposed ABX3 9 (Núñez; D-Los Angeles), which contained a billion-plus-dollar tax increase that ultimately would have reduced funding for education, although supporters of the legislation’s two major new taxes on the oil industry said their goal was to fund education.

Earlier in the day, the bill passed the Assembly Revenue and Taxation Committee, 6-3, with committee members voting as they did in the full Assembly vote.

Harms Consumers, Economy

In opposing ABX3 9, CalChamber policy advocate Kyla Christoffersen pointed out that the bill would have hurt consumers and the economy.

Reducing the money in consumers’ pocketbooks through higher gas prices will make it tougher for some consumers to make ends meet and will discourage consumer spending, which will in turn further damage California’s already suffering economy. This will ultimately result in fewer tax revenues to fund education.

Merely stating in the bill that the new taxes created by ABX3 9 cannot be passed on to consumers overlooks the economic reality that such tax increases do not occur in a vacuum and will harm the state’s economy, the CalChamber noted.

Voters Opposed

The CalChamber noted that the bill contravenes the will of Californians, who previously rejected severance taxes on the oil industry. CalChamber-opposed Proposition 87 on the November 2006 ballot contained a severance tax increase proposal similar to ABX3 9 and was defeated by voters.

More Dependence on Foreign Oil

Another reason to oppose ABX3 9 was that it would have increased California’s dependence on foreign oil.

By making oil production more expensive, ABX3 9 would have impeded critical investments in research and development of domestic oil supply, including new technology, production and infrastructure.

According to the Federal Trade Commission, the major causes of the increase and instability of fuel prices are rising crude oil prices, which are set internationally, and the growing imbalance between worldwide demand and U.S. production capacity.

Increasing dependence on foreign oil supply will result in even higher gas prices for consumers. Moreover, foreign oil must be brought into California through the ports, which means that ABX3 9 would have resulted in greater port congestion, pollution and greenhouse gas emissions.

Competitive Disadvantage

The argument that California should impose an oil severance tax because other states have one erroneously disregards stark differences in overall tax burden and structure among the states, the CalChamber commented.

Other states that rely heavily on severance tax have much lower or no income or sales taxes. For example, Texas has a severance tax but no income taxes. Similarly, thinly populated Alaska obtains 50 percent of state revenues from its oil severance tax but has no sales or income tax.

Thus, the tax increases in ABX3 9 would have placed already heavily-taxed California oil companies at an even greater competitive disadvantage by imposing the heaviest combined tax burden on oil production by far nationwide.

Poor Policy, Process

ABX3 9 would have inappropriately singled out a single industry for taxation. The CalChamber believes it is bad tax policy to single out industries for taxation to fund specific, unrelated programs. Such a practice sends the message to other industries that if they locate or do business in this state, they may be targeted for a new tax-and-spend scheme.

In addition, the consideration of ABX3 9 was rushed through the Assembly, skipping regular legislative notice process. The CalChamber noted that it is inappropriate to schedule a hearing and floor vote on an issue of with significant impact on business, consumers and the economy - in such a short timeframe.

Key Vote

As a tax increase, ABX3 9 required approval by two-thirds of Assembly members. It failed to pass the Assembly on a largely party-line vote of 45-30.

Staff Contact: Kyla Christoffersen

Ayes:
Arambula (D-Fresno), Bass (D-Los Angeles), Beall (D-San Jose), Berg (D-Eureka), Brownley (D-Santa Monica), Caballero (D-Salinas), Calderon (D-Montebello), Carter (D-Rialto), Coto (D-San Jose), Davis (D-Los Angeles), De la Torre (D-South Gate), De León (D-Los Angeles), DeSaulnier (D-Concord), Dymally (D-Compton), Eng (D-Monterey Park), Evans (D-Santa Rosa), Feuer (D-Los Angeles), Fuentes (D-Sylmar), Furutani (D-Long Beach), Hancock (D-Berkeley), Hayashi (D-Castro Valley), Hernandez (D-La Puente), Huffman (D-San Rafael), Jones (D-Sacramento), Karnette (D-Long Beach), Krekorian (D-Burbank), Laird (D-Santa Cruz), Leno (D-San Francisco), Levine (D-Van Nuys), Lieber (D-Mountain View), Lieu (D-Torrance), Ma (D-San Francisco), Mendoza (D-Artesia), Mullin (D-South San Francisco), Nava (D-Santa Barbara), Núñez (D-Los Angeles), Portantino (D-La Cañada Flintridge), Price (D-Inglewood), Ruskin (D-Redwood City), Salas (D-Chula Vista), Saldaña (D-San Diego), Solorio (D-Santa Ana), Swanson (D-Oakland), Torrico (D-Newark), Wolk (D-Davis).

Noes:
Adams (R-Hesperia), Aghazarian (R-Stockton), Anderson (R-La Mesa), Benoit (R-Bermuda Dunes), Berryhill (R-Modesto), Blakeslee (R-San Luis Obispo), DeVore (R-Irvine), Duvall (R-Yorba Linda), Emmerson (R-Redlands), Fuller (R-Bakersfield), Gaines (R-Roseville), Garrick (R-Solana Beach), Houston (R-San Ramon), Huff (R-Diamond Bar), Jeffries (R-Lake Elsinore), Keene (R-Chico), La Malfa (R-Richvale), Maze (R-Visalia), Nakanishi (R-Lodi), Niello (R-Fair Oaks), Parra (D-Hanford), Plescia (R-La Jolla), Runner (R-Lancaster), Silva (R-Huntington Beach), Smyth (R-Santa Clarita), Spitzer (R-Orange), Strickland (R-Moorpark), Tran (R-Costa Mesa), Villines (R-Clovis), Walters (R-Laguna Niguel).

Absent/abstaining/not voting:
Cook (R-Yucca Valley), Galgiani (D-Stockton), Garcia (R-Cathedral City), Horton (R-Chula Vista), Soto (D-Pomona).

Additional Materials

Taxation