No on Proposition 87


WHEN GAS PRICES GO THROUGH the roof, two things inevitably happen: Voters see red, and all kinds of nutty proposals are floated aiming to make oil companies share their pain. Hence Proposition 87, which would impose an oil extraction tax on companies that drill in California and use the proceeds to pay for alternative fuel research.

Even by the warped standards of ballot initiatives, Proposition 87 — the result of confused economic thinking — is deceptively marketed. Do not be misled by its grass-roots posturing. The reason the measure, which might be retitled Bing vs. Big Oil, may be the most hotly contested on November’s ballot is the depth of the bankrolls on both sides. Multimillionaire movie producer Stephen L. Bing has contributed $40 million to the “yes” campaign, the most ever spent by an individual on a California ballot measure. Plenty of business interests are lined up alongside him against Big Oil, hoping that frustration with high gas prices will create a new form of corporate welfare for competing energy companies.

The “yes” campaign essentially urges voters to stick it to the oil companies that have been gouging them at the pump, making the companies pay for cleaning California’s air. But the same phenomenon fueling resentment of oil companies renders the measure unnecessary. High gas prices are already creating a powerful market incentive for privately funded research on alternative fuels, making it superfluous to spend tax money on it.


Clean-energy technology is the fastest-growing segment in the venture-capital industry. Hundreds of millions in private money is being pumped into companies such as L.A.-based Altra Inc., which is building a network of ethanol and biodiesel plants (and, perhaps coincidentally, is backed by venture capitalist Vinod Khosla, who along with Bing is a key financial supporter of the Proposition 87 campaign). Creating a state bureaucracy to oversee R&D in this industry is a spectacularly bad idea.

The measure seeks to forbid oil companies from passing the tax onto customers. Only poll-driven political consultants would dream of raising someone’s cost of doing business while simultaneously proclaiming that the business can’t seek to do anything about it. Such a legally dubious move, much like the rest of this proposition, defies Econ 101 principles.

Proposition 87’s backers are equally disingenuous in suggesting that oil companies are getting a free ride in California, given the absence of an extraction tax. Oil companies are hardly undertaxed here; most states that have extraction taxes don’t charge California’s steep corporate income taxes.

It is true that voters, and this page, endorsed a taxpayer-funded form of industrial policy in 2004 with the $3-billion bond measure to fund stem cell research. That was an exceptional case of the state taking a stand against a federal refusal to embrace science. Ensuing conflict-of-interest and transparency issues with the board created by that measure argue against taking a similar approach to other industries. And at least the stem cell proposition had the courage of its convictions: The public opted to pay for something it deemed to be in the common good.

Proposition 87’s extraction tax, on the other hand, feels a lot like an “extortion tax” offered up by well-funded venture capitalists eager to impose a tax on their competitors. Don’t buy it.