Absurdity of California Oil Profits Tax Becoming More Obvious

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It never made any sense for a businessman named Gavin Newsom, now California’s governor, to come out against profits—in this case, for the oil companies. In calling a special session of the Legislature last November, he branded it “price gouging” by “Big Oil.”

Hearings last week in the Legislature showed even his fellow Democrats are skeptical. Said Sen. Steve Bradford (D-Gardena): “In our pursuit to address gasoline prices, we must ensure our actions that we take first [do] no harm to consumers.”

Sen. Dave Min (D-Irvine) last month introduced Senate Bill 599, which would ban offshore oil drilling in California. But even he said at the hearing, “There is clearly a belief out there among many people that oil companies were profiting off the backs of Californians. At the same time, we don’t really have a smoking gun as far as I can see, that shows intentional collusion.”

Min is running for a U.S. House seat in the “purple” 47th Congressional District. The currently is held by Democrat Rep. Katie Porter, now running for the U.S. Senate seat being vacated by Sen. Dianne Feinstein. But Porter barely won re-election last November, 51.6 percent to 48.4 percent. Coming out for new taxes likely won’t appeal to moderate voters.

As I wrote in The Epoch Times in December, today’s “record” profits actually are a mirror of the massive losses the oil companies suffered three years ago when the COVID-19 lockdowns actually reduced the price of a gallon of oil to below $0. (It’s now $79.85, roughly the average the past three months).

I keep track of my gas expenses for my creaking old 2010 Camry—here’s what I have been paying per gallon for the 150,000-mile flivver at Costco or Arco:

  • March 5,2020 (just as COVID was hitting) $3.20
  • April 23, 2020 (height of the pandemic) $2.58
  • July 9, 2020 (lockdowns easing) $2.99
  • Jan. 3, 2021 $2.84
  • Feb. 10, 2021 (Biden president for three weeks) $3.28
  • Jan. 24, 2022 (Biden president for one year) $4.70
  • March 2, 2022 (Ukraine War at one week) $5.00
  • March 25, 2022 (Ukraine War at one month) $6.42
  • Jan. 30, 2023 (Biden in office for two years) $4.30

You can see the real cause of the price increases are: 1. Recovery from COVID, as noted. 2. Biden becomes president and shuts down Keystone pipeline. 3. Biden pauses new oil leases. 4. Ukraine War and resulting ban on Russian oil imports to U.S, EU. 5. General inflation under Biden.

Following my December analysis, on Feb. 9 Chapman University economists Jim Doti, Raymond Sfeir, and Fadel Lawandy wrote something similar:

Chevron incurred annual losses of $33.5 billion in 2020-21. Those losses are almost as much as its ballyhooed profits of $35.5 billion this year. Even that profit of $35.5 billion isn’t all that great when one considers that those profits as a return on sales were 15 percent — not far off the S&P 500’s average return on sales of 14.2 percent over the same period.

But just matching average returns turn out to be a great year for Chevron.  The past has not been so great. In 2021, Chevron’s return on sales was 10 percent, markedly lower than the S&P’s 15.5 percent that year. Chevron fared even worse in 2020 as its return on revenues crashed to a negative percent while the S&P’s average return was a positive 10.4 percent. Chevron’s abysmal performance in 2020 shouldn’t be all that surprising since that was the year crude oil prices in spot markets briefly turned negative.

What will happen? What I suspect is the Legislature and Newsom quietly will drop the whole thing. Newsom, as I have said many times, is a savvy politician. And savvy politicians know when to float a trial balloon, and when to let it just float away.

Newsom made some good grandstanding points against the hated Big Oil, which will help him in Democratic primaries next year, or in 2028, especially with environmentalists. If it comes up in a year or whenever, he can just say, “That was a great idea the Legislature just wasn’t ready for.”

Meanwhile, there will be no wrangling over the text of a new tax, no economists appearing on TV saying it’s a bad idea, and no “tax increaser” label stamped on the back of his business suit.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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