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Political Review: California Proposition 87

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A modern society must have abounding sources of energy at hand in order to maintain or improve its living standards. Our problem today is that demand for energy is expanding while too much of this energy comes from dwindling sources, thus making energy more expensive and possibly impacting our standard of life.

California Proposition 87 is intended to develop the field of alternative energy. It works towards making this field economically viable and commercially available to consumers. It seeks to offer benefits to businesses and private consumers who buy hybrid or alternatively-fuelled vehicles. It will be served by an infrastructure subsidized by Proposition 87 funds. Proposition 87 also proposes to fund research in support of these efforts, and to fund training for the personnel needed to operate new infrastructure.

I support the goals presented by Proposition 87. However, there has to be a better way to implement and fund these goals. Proposition 87 leaves too many problems to be resolved in the future by entities which may be influenced by the very interest groups they are charged to oversee and regulate.

The very vocal critics of Proposition 87 have made some good points. For the benefit of those of you who live in California and hear the ads constantly, I won’t describe them in detail. However, many of them are concerned (rightly, in my opinion) by refiners switching to sources of crude that aren’t covered by state regulators. They are also concerned by the lack of accountability and oversight in the reformed governing bodies covered by this initiative.

But there are other problems with Proposition 87 that haven’t been addressed. For example, the tax rates it proposes change with the price of oil in a manner similar to that of our national income tax. However, the tax rate structure is so poorly defined that it isn’t possible to determine before-hand how much tax a producer will pay.

The calculation of Proposition 87’s tax rates will be based on decisions made by the Franchise Tax Board, the state agency responsible for collecting all state taxes owed, and then later confirmed or adjusted by the courts when challenged. For instance, a barrel of $70 crude could raise between $2.17 and $4.20 in tax depending on how the tax due is calculated.

Considering that oil producers are already spending millions of dollars attempting to convince California voters to turn down this initiative, can we imagine they wouldn’t follow it up with court challenges intended to prevent the application and enforcement of this new and cumbersome law?

There is too much room for abuse in this taxation process. I would feel much better about a fixed tariff per unit of oil, regardless of its price. It would make it easier for producers to know how much such a tax will cost in a way that allows them to securely plan ahead. It also reduces the incentive to cheat.

As Proposition 87 stands, it will lead to cheating. We can even guess how. For example, while Proposition 87 prevents producers from passing along their costs to consumers, the State Legislative Analysts’ Office admits that there is no practical way to enforce this.

I hope that the authors of this proposition, whose intentions are good, find ways to tighten up their process so that it can be implemented with a minimum of judicial retouching. As it stands, there are too many loose ends in Proposition 87 for me to recommend anything to my California readers except a “no” vote.

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