California's Untapped Revenue Resources

With California facing a $21 billion budget deficit, the state’s elected leaders continue to look away from sources readily seized elsewhere.  Clearly, there is no magic bullet. There is little room to cut any more services without bringing pain to the state’s most needy elements and, ultimately, higher costs to the state. Also state leaders have run out of gimmicks like deferred maintenance, and fungible transfers. 

In fact, it seems that the state has just about run out of every common-sense solution except the obvious: taxation of non-taxed or under-taxed sources. 

Here are three examples:


It’s hard to believe, but California is the only one of 14 oil-producing states without an oil severance tax. The legislature has dilly-dallied on this for years. When reformers in 2006 qualified a modest tax that would yield $400 million over a 10-year period, the oil industry spent $100 million in commercials to assure the proposition’s defeat in the election. Even Governor Schwarzenegger has realized the need to tax oil, although he backed off when Republicans in the legislature sad no to any new taxes. Still, there are two bills in the legislature now that would tax oil severance at 10% -- about the rate of the corporations and business tax. If enacted, this proposal would bring in about $1.5 billion annually, while adding less than a dime per gallon at the pump.


California now ranks 33rd in tobacco taxes, with the state rate of 87 cents slightly more than half of the national average of $1.45. The tax has not been changed since 1998. The legislature has stood still on the matter.  When voters were asked to consider a tax increase of $2.60 per pack in 2006, the tobacco industry spent $65 million in a campaign that defeated the issue. Since then, there have been several modest bills before the legislature with no action. A tax increase of one dollar per pack would add $855 million to the state treasury.  In the event the legislature doesn’t act, voters will have another opportunity to consider a one dollar increase in 2012. You know the tobacco industry will have its say.


California last raised taxes on alcohol in 1991. In the taxation of wine, the state ranks 49th. California taxes on beer and hard liquor also are well below the national average. At one time, Governor Schwarzenegger proposed a modest nickel a drink tax increase; that idea was shot down quickly by Republicans in the state legislature. The issue is again before the legislature in 2010. If passed, the added revenue would amount to $750 million per year.

There you have it. Three taxes on industries all but ignored in the revenue scheme — three taxes that would yield close to $3.5 billion annually. Moreover, studies show that higher costs at the pump would discourage driving, while higher prices for alcohol and tobacco would improve public health. Sadly, the power of the interest groups associated with these products and the resistance of anti-tax legislators stand in the way. Instead, we face the strong possibility of pulling the plug on poor seniors, disabled people, impoverished individuals who are trying to get on their feet while looking for work, and other segments of California society to weak to fight. 

That’s quite a price for protecting powerful interests.  

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