You have one pip of a governor. Doyle to oil companies: make a profit, go to jail.
Doyle's oil tax plan difficult to enforce
JASON STEIN
State officials probably can't stop oil companies from dipping into your pocket to cover the costs of a gas tax proposed by Gov. Jim Doyle, experts say.
The state can tax gasoline brought into the state, as Doyle proposed in his budget last week. But it's unlikely the governor can follow through on his promise to prevent oil companies from passing the tax along to consumers by raising prices at the pump, said economists and others familiar with the industry. Doyle wants to hire a team of auditors to help enforce a proposed law that would fine, and possibly jail, oil companies or executives who passed the tax on to consumers.
But experts were skeptical whether state auditors could prove that rising gas prices reflected the costs of the tax, as opposed to some other factor in a complex global market. The issue comes as some Republican lawmakers question whether the measure could mean consumers pay up to 5 cents more at the pump.
"I guess that to me this is symbolic politics. I don't see it as being a really practical solution to the problem of a highly concentrated oil and gas industry," said UW-Madison law professor Peter Carstensen, a Doyle supporter who's critical of oil companies but skeptical of the governor's proposal.
John Karl Scholz, a UW-Madison economist who specializes in tax policy, said he hadn't looked at the particulars of Doyle's proposal but said it seemed doubtful on its face - something akin to price controls on a product.
"Government and policy makers have not been very successful in controlling prices to achieve their policy goals. Taxes tend to be borne by both producers and consumers. It's hard for me to imagine how this would be any different," Scholz said.
For his part, Doyle said last week the tax was needed to help pay for much needed investments in the state's roads and to respond to what he said were the unfair profits that oil companies have made at the expense of consumers in recent years.
"Now in transportation we face a real issue about how we fund the infrastructure of the state," said Doyle, adding he preferred trying to lay at least part of the bill at the feet of the oil companies. "To me, that's the better choice."
The tax, which would generate some $272 million dollars over two years, has drawn support from Democrats who control the Senate and skepticism, but so far not rejection, from Republicans who control the Assembly. Two powerful lobbies are arrayed against the bill - road builders Wisconsin Transportation Builders Association - which supports the tax, and the petroleum industry which opposes it.
To defend the legality of the proposal, the Doyle administration pointed to a unanimous Supreme Court decision in 1988 that found that federal law did not pre-empt Puerto Rico's ability to tax oil refiners and prohibit them from passing the tax along to consumers.
"We feel that the law is settled in this area and very solid," Department of Administration Secretary Michael Morgan said Friday.
Erin Roth, executive director of the oil lobby Wisconsin Petroleum Council, said he didn't believe that the Puerto Rico case was an "apples to apples" comparison with Doyle's proposal, which he called unprecedented action in Wisconsin against a single industry.
Roth said that roughly 2.8 billion gallons of gasoline and diesel were delivered into the state last year, mostly by large companies with long-term profits that are similar to those of other industries. Some costs of a tax increase here would be borne by consumers in Wisconsin or other states, he said.
Senate Minority Leader Scott Fitzgerald, R-Juneau, has criticized the tax, saying it could add as much 5 cents per gallon for consumers at the pump.
Doyle's spokesman Matt Canter disputed that saying even if the tax were passed along, it would be less than 5 cents.
Four auditors needed
Morgan, a former secretary of the Department of Revenue, said a 2.5 percent tax would essentially be applied to gasoline being sold or brought into the state by suppliers.
The state would hire four auditors who would try to ensure that the costs aren't being passed along to consumers, he said. Any offending company could face fines equal to the tax amount they passed along or up to six months in jail.
"We (would) review books and records, pricing, market data to verify that the assessment has not been passed on," Morgan said.
Carstensen, who specializes in the regulation of energy companies, said didn't know whether the state's plan would be found constitutional. Although he said he "sympathized" with the governor's desire to take on the oil companies, Carstensen doubted state officials could prove in court that a price increase at gas pumps came from oil companies passing along the tax to consumers.
"It becomes a field day for lawyers," he said of the possibly lengthy court battle. "By that time we'll all run out of petroleum anyway."
Difficult to enforce
Doyle aides pointed to their own expert, Mark Cooper, director of research for the Consumer Federation of America. But even Cooper, a supporter of the tax, said he wasn't sure if Doyle could prevent costs being passed on to consumers.
"They put together a program which is noble in purpose and rigorous in design," Cooper said. But, "I can't predict how much they'll be able to succeed (in preventing costs from reaching consumers.) The oil companies don't play nice."
The tax is still in consumers' interests because it would go to roads, a public good, Cooper said.
One problem for the state in shielding consumers, economists said, is that oil and gasoline prices bounce up and down according to a dizzying array of factors - from unrest in Nigeria to problems at Gulf Coast refineries to holiday traffic.
The proposal "will be exceedingly difficult to enforce," said Andrew Reschovsky, a UW-Madison economist.
"The information that would be needed to make the case seems to me to be overwhelmingly difficult to gather," said David Weimer, a public affairs professor at UW-Madison who has worked in oil regulation at the U.S. Department of Energy.
Weimer said he didn't mean the gas tax itself was a bad idea, saying it made sense to tie the cost of roads to gasoline sales.
That raised questions, Carstensen and others said, about whether the four new auditors at the Department of Revenue would be enough to enforce the provision.
"Four? I would think it would take more like 40," said David Ward, president of NorthStar Economics, a Madison consulting firm.
"You have a couple people in a little department of revenue that are supposed to figure out the finances" of huge global companies, said Todd Berry, president of the Wisconsin Taxpayers Alliance and a former state revenue official. "You're asking an awful lot of auditors."
Morgan said if needed the state could draw on other auditors from its staff of 230, including some staff based in Chicago and New York who handle complex state tax audits of large companies.
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