Oil and You

By: Joe Oglesby

You may be upset at high oil prices and profits, but amendment 58 is not the way to exact revenge. The amendment will hurt the property owners, which is not the oil companies; the amendment will also hurt local governments. Currently half of the severance tax revenue (approximately $122.5 million in FY 2008-09) goes to the Local Government Severance Tax Fund. Under Amendment 58, only 22 percent of the severance tax revenue would go into the local fund. The amendment earmarks funds that would go to local governments. The earmark, however, restricts the spending of these funds to environmental protection rather than allowing the local government to spend the money as the community needs it spent.

Over the summer, with the high gas prices, people began to understand that they could get to many places by riding a bike or using public transportation rather than driving their cars. “A result of record energy costs is that Americans have drastically cut back on their driving this year, reducing their gasoline usage at the fastest pace since 1983.” The article cited above also reported that the Federal Highway Administration latest statistics showed that the number of miles driven has dropped the most since 1979.

Colorado currently has higher taxes on oil and gas than Texas, Oklahoma, and Kansas. In oil producing states it has the third highest taxes. The graphs below are from a study that compares oil and gas tax burdens on nine producing states.

In gas producing states it has the fourth highest tax collections.

Under amendment 58 Colorado will move up to the second highest and nearly the highest tax collection. Amendment 58 and initiative 113 are the same; the only difference is that amendment 58 became the official title when it was added to the ballot.

Since Colorado’s taxes on oil and gas are progressive, the taxes will continually grow, as prices for these goods increase. These costs will be passed onto consumers. The temperature is forecasted to be almost 3% colder this winter, across the lower 48 states. Colder temperatures mean higher energy bills. These bills will also be compounded by an increase in taxes directly passed onto the consumer. These increases will not only be in personal energy consumption. Higher energy prices will mean that food transportation costs will go up. All of the higher prices will always fall to the consumer.

Amendment 58 is a tax increase and will directly affect the citizens unlike political ads may lead the people to believe. Removing a subsidy is a tax increase. Colorado, with the subsidy, pays some of the highest taxes. Oil and gas is a business. These businesses will recoup their losses. You will pay more for the oil and gas you need.

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3 Comments

Filed under Colorado

3 responses to “Oil and You

  1. Brian Bohnert

    Joe, I think you inadvertently argued in favor of 58. Here is how: you pointed out that “with the high gas prices, people began to understand that they could get to many places by riding a bike or using public transportation rather than driving their cars,” which is true according to supply/demand rules. You then said that energy prices will go up during the winter if 58 passes which leads to an increase in operating costs, leading to higher bills for the consumers. If we extrapolate your logic it would lead to smarter consumer choices in terms of heating costs and personal choices, such as adding a blanket to your bed or turning down the heat when you leave the house for the day. This conservation ethic is something that we have not been asked to embrace because we leave in such an consumercentric society that is fueled largely by those on the right (“I’m pro-consumption” – Sean Hannity). The only thing that seems to force change for the bulk of Americans is to hit the pocket book. So is it really a bad thing that energy prices go up as it will finally force responsible behavior from both individuals AND government?

  2. Stephen Noriega

    I am impressed by your argument against 58. I liked the visuals and graphs. You will have to back away from your statement in class that oil and gas companies will flee to Wyoming, as they have the highest tax rates according to your own stuff. I do think your position is solidified as oil and gas prices come down and those companies have less to gain from more expensive extraction here. If oil shoots up again (which it eventually will) the oil and gas companies will suffer high taxes as a ratio to volume of reserves.

  3. Tony Robinson

    Great post and good argument Joe. Love the informative graphs and I learned something from this post and appreciate the energy it took to put it together.

    I have two ways of disagreeing with your fundamental conclusion that “No” is the best vote though. Either it will drive prices up or it won’t, and either way, I’m thumbs up. And its not just because of my socialist “tax anything that moves” sensitivities.

    1) I agree with Brian. Driving prices up is fine by me, as it leads consumers to more strongly support alternative (and wiser?) energy sources, thus reducing global warming, etc. Though $3.00-$4.00 gas hammers me as it does the next guy, I am pleased that those prices are forcing consumption down. so actually, its my socialist “tax anything that moves fueled by oil” sensitivies here….

    2) It may not in fact drive prices up. Joe says that its all a business and that they will just pass the tax on in the form of price increases. But there are many things that affect prices in a global oil/gas market, including global demand, profit margins, R&D, global supply, etc. A colorado tax hike is a very small piece of all those factors–so small, in fact, that we won’t see a perfect pass-through of the costs to just CO consumers. If a price increase is passed through, it will be passed through to consumers across the globe, not just in CO, and thus we will feel very little of it here.

    Also, a tax hike or wage increase can result in price increases–but it can also result in lowered profit margins. Both are possible. We have plenty of eras in our history when profits were lowered as the people rose up and voted new min wage laws and otherwise defended their socialist work camps. Companies gave in and accepted lower profits, without fueling a massive wave of inflation. Why shouldn’t we assume that record shattering oil profits might decline moderately with this tax hilke, as opposed to the tax increase fueling a flood of costs to lower income people.

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