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Joshua Sharf

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More Economic Illiteracy

When will we learn that there really is no free lunch? Some Colorado legislators, eager to throw yet more money at the teachers' unions, want to raise taxes on the booming oil and gas industry in the state. And for some reason, they don't think it will actually cost anything:

The proposal would increase by 1 percent the taxes oil and gas producers pay and would divert some federal mineral lease funding largely for school-building and renovations.

"It is our intention in this measure to make sure that we address the immediate health and safety needs in the poorest districts first," said Mary Wickersham, a leading supporter of the proposal and who works for the Donald Kay Foundation.

Because oil and gas prices are set by national and international markets, Wickersham said, the severance tax hike would not increase what Colorado consumers pay for gasoline or natural gas.

Well, if you spread the added cost over the entire worldwide oil & natural gas markets, I suppose that's true as far as it goes. But of course, it's only true as far as any cost doesn't really show up in the price, since prices are set by markets, not by sellers. It also makes Colorado marginally less competitive, since the competition isn't only straight drilling now, but also tar sands and shale oil. Which eventually will mean an equivalent number of jobs lost. Oh, we won't notice it now, only when we need the work.

Then again, what do you expect from someone who thinks that calling a wild pitch a ball means that the umpire is skewing the game?


I'm wondering why, in the Post article you cite and in Rocky article on the same measure, the oil and gas industry has singled they would not oppose this--if it would have the impact on production you suggest.

Well, it's a very marginal impact, of course, and like most taxes, the bad effects only show up when you can least afford them. But there are a number of reasons companies go along with this sort of thing.

First, the larger established companies like it because it raises the barrier to enter for smaller companies with less market reach.

Second, they may fear that something worse is on the way, so the best damage-control is to try to cooperate up front. In the long run, this is like cutting off a toe and offering it to the wolves. But what can you say about an industry that rushed back into Venezuela after it had nationalized its oil fields. They never learn.

My point was that Wickersham makes it sound like there's no cost, when of course, any tax is a cost that has to come from somewhere. Right now, it's profits. But it's also R&D, and eventually, expansion.

So there is, as you say, at best a "marginal impact". And big oil and gas companies are agreeing to it because they believe, all things considered, it is in their best interest. So, all things considered, (according to the people that live and breathe these profit margins) the best scenario for them is this measure. Wouldn't that mean the citizens of Colorado would be well served by this "compromise"? And, following the whole line of logic, that means CO citizens could reap a benefit from this investment since in all likelihood it could be much worse.

And on that note, are you suggesting that raising the oil and gas profit tax 1% will eventually affect CO buyers when it is such a national/international market? Does that mean that since New Mexico has a 9% (compared to our 1.8%) tax, we here in CO should pay it? Aren't we losing out? Isn't NM getting an investment into their state that we are letting pass?

If any statewide tax would hurt production, at best "marginally", and CO is so low comparatively, are we subsidizing other states' revenue?

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