Wisconsin State Journal

No matter how devoutly Gov. Jim Doyle believes that oil companies have been gouging Wisconsin, the state should not respond by gouging oil companies.

For that reason, the Legislature should reject the governor’s two-part plan to slap oil companies with an extra tax and prohibit the industry from passing the cost along to consumers.

The plan, the first of its kind in the country, would create a slippery slope of government control that ought to alarm every business and consumer in Wisconsin.

Declaring “the oil companies have gouged the country in every way,” Doyle proposed in his state budget to impose a 2.5 percent tax on each barrel of oil meant for sale in Wisconsin. The tax is projected to raise $270 million to help pay for new roads and other transportation projects.

To keep consumers from feeling the tax increase at the gas pump, the governor intends to forbid oil companies from raising prices to cover the new tax. He pledged to throw oil executives in jail for six months if they violated the prohibition.

No doubt the governor’s rhetoric is tempting to consumers who would like a bit of revenge for last year’s $3-a-gallon gasoline prices. But revenge is not a good motive for policy making. It often produces unintended consequences.

For example, the tax is likely to discourage oil companies from adequately supplying Wisconsin. Tighter supplies could yield higher prices for consumers.

Moreover, the governor’s accusations against the oil industry fail to fit the facts. The industry has been investigated over and over for illegal profiteering, almost always with no meaningful result. The Federal Trade Commission and a long list of states have found no industrywide wrongdoing.

In addition, while Doyle condemns the oil industry’s huge profits, a 2005 study by Business Week magazine showed that banks, pharmaceutical companies, software businesses, household product companies and real estate businesses all have higher profit margins than the energy industry.

Some business tax hikes, such as the increased tax on cigarettes Doyle proposes, are justified as user fees to offset costs. That’s not the case with the oil tax.

If government can select the oil industry for a specially contrived tax, based on an arbitrary judgment that profits are excessive, what industry is the next target? Is the pharmaceutical industry ripe for an extra tax to fund health care? (Doyle told the State Journal editorial board that he would have to think about that.)

Groups are now complaining about the impact of rising corn prices on food costs. Would some future governor hit farmers with a tax to fund programs to feed the hungry? Where would the taxes stop?

Lawmakers should stop the governor in his tracks. They should reject the oil industry tax.