Pennsylvania: Don’t Tax Me, Don’t Tax Thee

By March 26, 2007Energy

Governor Ed Rendell of Pennsylvania has joined his Wisconsin compañero, Governor Jim Doyle, in playing the taxpayers and voters for economic dunderheads, claiming he can rescue the state’s transportation system by taxing oil companies while prohibiting them from passing the tax on to the consumers.

Rendell just finished a statewide bus tour touting his plan for funding bridges, highways and mass transit. The plan, according to the governor’s office, includes a 6.17-percent tax gross profits tax on oil companies, generating $760 million a year for mass transit. (He also wants to lease the Pennsylvania Turnpike.)

A talented politician, Rendell knows that motorists dislike paying more at the pump, so his legislation authorizes the attorney general to prevent the oil companies from passing on the tax to the consumer. The governor’s stated rationale? Oil companies profit from people driving, therefore they should pay. More. Lots more.

It’s balderdashed bunk on several fronts. Some have noted the obvious — there’s no such thing as a free lunch — while the Pennsylvania Gas and Oil Association has analyzed the tax, which is based on “combined reporting,” i.e., taxing the company portion of total profits attributable to activity in Pennsylvania. As such, it would hit everyone from oil producers, crude oil haulers, refiners, gasoline and fuel oil shippers and marketers to distributors of refined products.

There’s a more basic objection, one we’ve also levied against Doyle’s plan. It’s anti-market, an incredible governmental power grab. Telling a company it can’t pass on a tax smacks of expropriation: “We’ll just take your wealth, and you can’t do anything about it. Don’t even adjust your business plan.” Furthermore, the governmental machinery needed to ascertain whether a company is passing on a tax to consumers would be huge, intrusive. In effect, you’d be taking over the operation of the business.

Democrats and Republicans alike are leery of Rendell’s scheme. Even if the legislation passes, lawsuits will follow, and given case history, the courts will overturn the law. In the meantime, the governor can beat up the oil companies for political gain. And, if he’s still in office when the law is thrown out, he can then push for a straightforward gas-tax increase, saying the greedy corporations have left him no other choice — thereby escaping the political consequences of raising taxes. A clever political move, but economically disastrous. Pennsylvania could use a better economic course.