cpt-emnn632-5551212

Scott Macdonald ("No on 87")-------Shelley Luce ("Yes on 87")------Joel Schwartz (AEI)

Jack Kyser (LAEDC)---------------Bill Hamm (LECG)

Proposition 87 "Prohibits producers from passing tax on to consumers"

When former President Bill Clinton told the nation that "I did not have sexual relations with that woman, Ms. Lewinsky," his statement, parsed a certain way, was true, although it was, and is now universally considered to be, disingenuous, misleading, and, essentially, false.

When a spokesperson for the Silicon Valley billionaires behind Proposition 87, asked, "Will the oil companies be allowed under the law that would be implemented through Prop. 87 to pass this 6% or other tax rate on to consumers of gasoline?", says: " Absolutely not. There is no pass-through in this fee, and that is actually written directly into the bill and the Attorney General of California has confirmed that that would be an illegal action on the part of oil companies," this statement, parsed in a certain way, is true, but it is, like President Clinton's disavowal of "sexual relations" with Monica Lewinsky, disingenuous, misleading, and, essentially, false.

Referring to a $4 billion severance tax on oil extracted from under California's surface, Proposition 87 says, in Article 4, Sec. 42004:

"(c) The assessment imposed by this Part shall not be passed on to consumers through higher prices for oil, gasoline, or diesel fuel [bolding added]. At the request of the authority, the board shall investigate whether a producer, first purchaser, or subsequent purchaser has attempted to gouge consumers by using the assessment as a pretext to materially raise the price of oil, gasoline, or diesel fuel."

The official Title and Summary for Proposition 87 states that the ballot initiative:

"Prohibits producers from passing tax on to consumers."

(This required Title and Summary, by the way, is the document by which "the Attorney General of California has confirmed" that producers are prohibited from passing the $4 billion in wellhead taxes on to consumers in the price of gasoline at the pump, not any independently-undertaken effort to determine the impact of raising taxes on oil on the pump price of gasoline, as might be seen to have been implied by the language used in that statement.)

The carefully-crafted language of the "Yes on 87" campaign's first television commercial says, in pertinent part:

"Make oil companies pay, and make it illegal to pass the cost to us."

Since a great deal of Proposition 87 venture capital money went into creating this language, and millions are being spent to communicate it to California voters over and over and over and over again (as was also spent to put in on the ballot in the first place), it can be assumed that every word of it has been thoroughly tested on focus groups.and vetted by attorneys.

Clearly, "the cost" that Proposition 87 would make illegal to pass on to California gasoline buyers is the proportional share in a gallon of gas of the oil depletion tax levied on oil producers per barrel of oil extracted from the ground in California.

Equally clear is the implication that, having criminalized the "pass-through" of any part of this new tax on oil producers, Proposition 87 will protect California gasoline buyers from any price increases whatsoever associated with the imposition of this additional tax.

Protecting consumers from price increases at the pump based on the levying of this tax is the implicit promise of Proposition 87's proponents and the form in which they are promising California voters the always-popular something for nothing, not to mention, as will be heard in the interviews below, promising to repeal the basic economic law of supply and demand, which, in this context, amounts to the same thing.

As can be heard in the four interviews below with a range of experts and advocates in the fields of energy and economics, adding to the cost of oil produced in California cannot help but cause an increase in the price to consumers in California of gasoline.

Given that increases in the price of gasoline are anathema to most of the people who buy it, and that any campaign to raise money for any purpose, including the support of "clean energy," that was likely (or certain) to raise those prices stands no chance of succeeding in the present climate of public opinion, anyone, such as the proponents of Proposition 87, must necessarily make a promise that what they are doing will not raise gasoline prices a cornerstone of their campaign.

As indeed they have, even though, as one of those interviewed below points out, it is "ironic" that the alternative energy movement for which Proposition 87's sponsors purport to speak generally favors higher gasoline prices, on the grounds that such prices will decrease energy consumption while simultaneously encouraging the adoption of alternative and renewable sources for whatever energy is still consumed.

Here are transcripts of the interviewee's views on the impact of Proposition 87's passage on the price of gasoline in California, not withstanding any promises by its proponents that voting for it will make "it illegal to pass the cost to us":

California Politics Today:
"Will the passage of Prop. 87 raise prices at the pump?"

Bill Hamm, former California Legislative Analyst, currently an economic analyst at LECG, which was hired by the "No on 87" side to conduct an impartial study of the effects of the passage of Proposition 87 on gasoline prices in California:

"The answer is, yes, of course it will increase prices at the pump, at least in the short term, and the reason we can be certain of that is that the imposition of a severance tax on California-produced oil will reduce the supply of oil available to refineries in California and in order to replace the lost product they will have to import oil from elsewhere in the United States or from the Middle East or wherever they can get it, and they will have to pay more in order bring it into the state of California and perhaps pay even more to refine it to California standards. So it's a simple matter of supply and demand and, yes, of course, it will increase prices at the pump."

California Politics Today:
"What's the relationship between that four billion dollar tax and the price of gasoline at the pump?"

Jack Kyser, Senior Vice President and Senior Economist, Los Angeles County Economic Development Corporation (LAEDC)

"Well, it would just add another penny or two to the price of gasoline at the pump because it's a cost for oil companies."

California Politics Today:
"Finally, bottom line, as you see it, what's the likely impact of the passage of Proposition 87 on gasoline prices at the pump?"

Jack Kyser:

"Probably be bad for it, probably drive prices up."

California Politics Today:
"One more time, the bottom line: What's the view of the 'No on 87' campaign in terms of the impact on gasoline prices of the passage of Proposition 87?"

Scott Macdonald, spokesperson, "No on 87" campaign:

"It will drive up the cost of gasoline because it makes oil production in California more expensive, it will produce less oil in California, and that has to be replaced by more expensive foreign oil."

California Politics Today:
"Bottom line, passing 87, what's its likely impact on gasoline prices?"

Joel Schwartz, Visiting Fellow, American Enterprise Institute:

"I think if Proposition 87 passes, it's going to make gasoline even more expensive than it is now."

To help you appreciate the subtly, depth, substance and intellectual rigor of the arguments being brought forward by both sides of this issue in support of their positions, the complete voice-over scripts employed in the most recent "Yes on 87" and "No on 87" television commercials appear below:

"No on 87":

"So now they want to increase oil taxes? Really? A four-billion-dollar state tax increase on oil? Ouch! And for what? To fund a new alternative energy bureaucracy with no accountability to tax payers and no requirement they produce any results. Since when is that a good idea?

"Vote "no" on 87. It's a recipe for waste, not progress."

"Yes on 87":

"The oil companies are making us pay.
"They made 78 billion last year.
"They paid billions in drilling fees to Texas, but not to Californians.
"It's time for them to pay their fair share.
"Yes on 87. Make oil companies pay, and make it illegal to pass the cost to us.
"Yes on 87, for cleaner energy." is now."