Monday, June 29, 2009

To Tax or Not to Tax?

Last night Assembly Democrats passed a budget package that includes an almost 10% tax on oil production. The move is not unprecedented as Arkansas did something similary last year and Pennsylvania has a similar tax proposal this year. But legislators in Louisana are moving in the opposite direction, cutting taxes on oil and gas production in an attempt to attract more drilling.

The Wall Street Journal quotes WSPA's Joe Sparano who is (obviously) openly critical of the California proposal: "California is a very difficult state to do business in to start with," said "Anything that adds to that burden logically is going to have a negative impact on economic growth."

Advocates of the tax argue that tax planning plays little or no role in a commpany's decision to drill or not to drill in a state-- it's all about how much oil and gas is in the ground. To wit, a Montana think tank produced a report that used a control group of Montana and Wyoming, which concluded that, despite the two states' radically different tax structures, oil and gas activity was more or less the same.