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Imagine you could turn back the clock to 1921. That year Louisiana adopted its method for taxing oil and gas. It’s a method that, by and large, is still in use today.
In 1921, a loaf of bread cost 12 cents, gas was 10 cents a gallon and a Ford Model T cost $290.
Louisiana was in an oil and gas boom. Wells were gushing oil and refineries and pipelines were being built to develop this new resource.
State and industry officials conceived a ‘Severance’ Tax to capture some of this newfound wealth in support of state government.
At the time, 90 percent of the oil and gas that traveled through Louisiana was produced in our state, and the Severance Tax targeted this production – and only this production.
Today, more than 90 percent of the oil and gas processed in Louisiana comes from other states, foreign countries and the Gulf of Mexico. Yet we still tax only in-state production. The vast quantities of oil and gas imported into Louisiana for processing go untouched.
Why does Louisiana rely on a 1921 tax system?
I have asked that question since the 1990s, first as a state senator and now as Public Service Commissioner. The answer from the industry is that the oil companies will leave Louisiana if it changes how it taxes oil and gas.
Leave Louisiana? Can oil companies move the Mississippi River that carries the giant tankers to Baton Rouge? Can they relocate their refineries between Baton Rouge and New Orleans? Can they rip up 40,000 miles of pipeline? Will any other state accept the pollution and coastal erosion that comes with oil and gas processing?
Oil companies go where the oil is, and that is offshore Louisiana, as evidenced by huge new oilfields discovered in the Gulf of Mexico. In August The Wall Street Journal described a new ExxonMobil find south of Lake Charles as “the largest discovery ever in the Gulf of Mexico” with one billion barrels of recoverable oil.
Weeks later Chevron said its new “Moccasin” field in the same area could contain “hundreds of millions of barrels” of oil and natural gas.
These disclosures contradict the oil lobbyists and their political supporters who keep saying oil companies will leave Louisiana. They won’t leave until the oil is gone.
I have proposed an alternative to the 1921 Severance Tax that benefits the entire state economy and every Louisiana resident. My Oil Processing Tax would replace the 1921 Severance Tax applying only to oil and gas produced in Louisiana with a tax on all oil and gas processed in Louisiana, regardless of where it comes from.
It would generate enough revenue to allow repeal of our state income tax, putting us in line with prosperous states like Texas, Florida and Tennessee.
Best of all, as a constitutional amendment replacing the 1921 Severance Tax, the Processing Tax would be voted on by the people of Louisiana. All we need is a Legislature with the courage to let the people decide.
Louisiana’s obsolete 1921 tax system barely scratches the surface of an industry making billions of dollars per quarter. How else to describe a system that taxes shale gas produced in DeSoto Parish but collects nothing on the oil shipped by Venezuelan dictator Hugo Chavez to his Citgo refinery in Lake Charles?
Multinational companies like Citgo and ExxonMobil make billions while Louisiana competes with Mississippi for last place in education, income and environmental health. Where are our politicians?
I am happy that oil companies are making new discoveries in the Gulf of Mexico and providing jobs. But their offshore activity has contributed to coastal erosion and no one has ever asked them to pay damages.
Louisiana should be the most progressive state in the South. Our 1921 tax system is holding us back. The people of Louisiana should demand that Bobby Jindal, Mary Landrieu, David Vitter and our state’s politicians stand up for the people and stop pandering to the big oil companies.