Thanks to the Governor’s actions, Californians lost good paying jobs. Facing the risk that they may have to pay an excess profits tax (whatever excess profits are), the energy industry now has even fewer reasons to invest in the state and even more reasons to relocate its current activities away from California. Intentionally driving away good paying jobs at a time when economic growth is slowing when tech-firms in San Jose are laying off tens of thousands of workers, and the region’s banking system is weakening is nothing short of economic malpractice by the Governor.
Thanks to the Governor, Californians have also lost affordable energy. A fundamental tenet of tax policy is that who bears the incidence of the tax often differs from who physically writes the tax check to the government. Undoubtedly, if the new bureaucracy that Newsom is creating declares that a company’s profits are excessive, then that fossil fuel company will be writing a big check to Sacramento. But it is not these companies who will pay the tax.
California’s drivers will pay the tax through higher prices at the pump. State residents will bear the incidence of the tax through the higher natural gas prices that they will now need to pay. And stockholders will bear the incidence of the tax through lower investment returns.
While harming investors may feel like the governor is “sticking it to the man”, ordinary Californians are often the owners of these investments through the mutual funds and pension funds that are investing on their behalf. For instance, despite all of its protestations, CalPERS still holds $27 billion in fossil fuel investments. Harming fossil fuel companies reduces the value of CalPERS investments, consequently, jeopardizing the retirement of millions of California’s public employees. The same logic holds for private-sector workers as well.
Californians have also lost a secure energy environment. California imposes an increasingly burdensome regulatory environment that makes it difficult for companies to deliver state residents energy in a safe and reliable manner. That’s why the state’s energy supplies are so volatile and why residents pay some of the highest energy costs in the country. These factors also explain why energy prices are so extreme in the state. Adding additional uncertainty regarding whether the company will be forced to pay an excess profits tax only adds another layer of uncertainty and volatility. Again, it is ordinary Californians who are ultimately harmed.
Clearly, the governor is wrong: It is not the oil companies who have lost. It is Californians. While many people may find it difficult to connect the Governor’s actions to the ill-effects they will be bearing over the next several years, that makes these costs no less real. And certainly nothing the Governor should be crowing about.
Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute.