Page 5


corporate profits tax gets at it. Secondly, if the corporate income tax is “a sort of sales tax,” he said, it is a means of shifting the tax burden to non-resident consumers of a state’s products. 1 4 In truth, the main thing the tax has going for it is its appearance of liberalism. It can be used to get concessions from the legislative liberals without actually giving them much. Another argument for it is that it’s a way of getting at two lines of corporate endeavor now almost entirely exempt from taxation. Sen. Charles Wilson, Trinity, pointed out last month that the chemical and gas transmission companies “don’t pay any significant taxes” to the state.” A corporate income tax would remedy this somewhat. LIBERALS HAVE been trying to pass a constitutional gas pipeline tax since the early 1950’s. At one point Gov. Price Daniel joined in with them that was a main cause of his defeat by John Connally in 1962. The popularity of a pipeline tax with the voters has made it impossible for the gas lobby to stop it, but provisions mysterious of origin have kept turning up in the laws as finally passed, making them unconstitutional. Eckhardt paused in Austin before returning to Congress to give his view of how this has happened. “You may tax a resource that may go out of state if the incidence is on an in-state operation like production, the removal of the gas from the ground, but not if the incidence is at a point related to interstate commerce,” he explained. \(The commerce clause of the Constitution prohibits the states from placing unreasonable burdens on interstate The Sewell-Nokes bill passed by the Legislature in the early 1950’s, Eckhardt recalls, “in some way” got a provision into it to tax the gas “at the tailgate of the plant.” The “brief and fatal language” in the law said the tax would be levied “after such gas has passed through the outlet of such plant. . .” The Supreme Court held this was unconstitutional. Daniel’s “severance-beneficiary” tax was based on the theory that the severance of gas from the ground for a beneficiary, which was the gas pipeline, would be subject to an additional tax. It was to be leyied at the point where the gas entered the pipeline. “There was some language there that the tax would be applicable to the last purchaser. It wasn’t in the bill originally. It is suspected it was put in by a lobbyist. Nobody knows exactly when it went in. I don’t think even Price Daniel knows. And it was his program,” Eckhardt said. Since the “last purchaser” would usually be on down the pipeline, far from Texas, this particular language became the target of the industry’s legal thrust against the law; it was declared unconstitutional, too. “I knew about these things in 1961, and Cartoon by Cong. Bob Eckhardt, reprinted from April 4, 1959, Observer. I taxed production,” Eckhardt said. “It was backed by Daniel and opposed by the lobby.” The theory of Eckhardt’s pipeline tax was based on the fact that gas is sold to a pipeline on a long-term contract that “dedicates the reserves” to the pipeline. The pipeline thus holds a property right in the gas in the ground. Eckhardt’s tax, he says, “was a tax on the dedicated contract property interest. The tax was on a property interest in Texas, falling on in effect a partner in production,” and not on interstate commerce, he says. He also argues that such a tax is defensible as soundly expedient. He set the rate schedule so that all gas would be taxed at a penny a thousand cubic feet, whatever the price paid for it by the pipeline. The cheaper the gas was being sold, the more the pipeline had to pay to bring the total tax up to the penny. Thus the tax had a conservation feature, since cheap gas is more frequently wasted. Lower prices for it also tend to discourage exploration for it, he reasoned. In Senate hearings on his bill, Eckhardt remembers, a Phillips gas lobbyist named Judge Foster “an elderly man, very smart” sent a note to a senator, who then offered “the amendment to exclude all gas which was processed in any way.” This immediately cut the bill’s revenue-capacity by two-thirds. Also, as a practical matter, it meant that the bill applied in the main about 99% only to gas entering interstate commerce. “This greatly strengthened the court attack on the bill,” Eckhardt says. He opposed the amendment “I think,” he said, “I have the distinction of being the only person who recognized when his gas pipeline bill was made unconstitutional.” But the bill passed with the amendment in it and was held unconstitutional by the Texas Supreme Court, without a statement of its reasoning. Eckhardt criticizes the attorney general at the time, Waggoner Can, for failing to ask the court to state its reasoning on rehearing, since no federal appeal was possible without such a statement. In floor debate in 1961, Eckhardt pointed out that in both 1959 and 1961 the Senate had placed a clause in the pipeline tax bill providing that if any part of the bill was unconstitutional, it all was. The Legislature ordinarily puts in a clause exactly opposite to this in effect when it wishes to pass a law. It is called the. “severability clause” and provides that if a part of the bill is unconstitutional, that part is severed from the rest, which then can stand as legal. The Senate committee action in 1961, to which Eckhardt refers from memory as a placement of the processed-gas clause into the bill, was actually the leaving in of a House-passed clause on processed gas, plus the addition of the non-severability clause making the whole tax unconstitutional. Eekhardt, in 1961, angrily told’ House colleagues “that for the third time a secret power, a kind of anti-attorney general’s office, has written unconstitutionality into a gas bill. There is a secret force in this state . . . with the talents of the finest lawyers in the state at its disposal . . .” If the spoiling clauses were left in, he told the House, the bill would be “to no avail,” and the legislature would have passed again “a hollow sham of a gas tax.” The clauses were left in. The bill passed, and in due time it was struck down by the courts. Eckhardt would add some wrinkles to the bill today and make the tax come up to 2 per MCF because of changed prices, with a mandatory pass-on of the new tax to the first purchaser, that is, the pipeline. This, he says, would raise $15 million a year. To the extent it was passed on, it would repay Texans from out-of-state gas consumers for the exhaustion of an irreplaceable natural resource that, like oil in Texas, in some interesting sense belongs to Texans. IN 1959, Eckhardt proposed to lower the state’s oil production tax on 6,583 Texas oil producers and still raise money. The tax is a flat-rate 4.6% on the value of oil at the wellhead. Eckhardt wanted to graduate the rate to increase the yield only from the 17 largest of the 6,600 oil producers in Texas. The highest rate would have applied only to Humble Oil, which produces the most oil in Texas. He said at the time that all his bill did was recognize the tremendous monopolistic advantages of the major oil companies. “There is,” he said, “a need for a return to some of the old Texas conscience against monopolies.” His exact proposal and the tables showing net oil company profits at which it was aimed were all set forth in the Observers of that year.’ 5 Although liberals usually got only 8 The Texas Observer . .