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Severance tax opponents using scare tactics; George Hayduk; Beaver County Times; June 24, 2015.
Below is a detailed critique of the subject letter.
“Citizens for PA Jobs is inundating television and radio with ads to frighten Pennsylvanians. The purpose is to prevent a severance tax from being levied on gas extracted from the Marcellus shale. The claim is that drillers will abandon Pennsylvania. A secondary claim is that any money collected will go to Harrisburg, not to local communities.
“Drillers have not left any state with a severance tax; every state with gas reserves has a severance tax except Pennsylvania. It is estimated that Pennsylvania has 1.925 billion cubic feet of gas remaining in shale. Does any rational person think drillers will abandon Pennsylvania because they will make only a 95 percent profit when the citizens of this state take 5 percent?”
[RWC] That “every state with gas reserves has a severance tax except Pennsylvania” is a common claim that appears to be false, though PA is definitely in the minority as of 2012.
Mr. Hayduk failed to mention PA has an impact fee in lieu of a severance tax. According to the Post-Gazette, “Pennsylvania communities to share $223 million in drilling impact fees” from 2014.
According to the Tax Foundation, PA’s business tax climate already ranks 34th for 2015, three positions worse than 2014 and 13 positions worse than 2012.
Mr. Hayduk’s assertion “Pennsylvania has 1.925 billion cubic feet of gas remaining in shale” is way, way off. According to the most recent U.S. EIA estimate, PA’s proved shale gas reserves as of 12/31/13 were 44,325 billion cubic feet. That’s more than 23,000 times Mr. Hayduk’s figure. I don’t know if the rest of Mr. Hayduk’s figures are equally off base.
Does Mr. Hayduk really believe gas producers currently make 100% profit? Remember, gas producers pay the same taxes as other businesses.
“In 2013, the profit to the gas companies from Pennsylvania shale gas was $11.8 billion. Had a 5 percent severance tax been in place, then the state would have gained $590 million in revenue.”
[RWC] Severance taxes are assessed on the volume or value of gas produced, not a company’s profit. That is, some severance taxes are $x per cubic foot of gas produced while others are x% of the produced gas’ market value. Gov. Tom Wolf’s (D) proposal would do both plus set a minimum value for taxation purposes. That is, when the market value of the gas is below the minimum, the value for tax purposes will be the state-set minimum. For example, if the state-set minimum price is $2.97 per thousand cubic feet (Mcf) but the market price is $2.50 per Mcf, the tax owed would be based on $2.97 per Mcf.
“Thanks to former Gov. Corbett and the GOP, that potential revenue has been lost. Eighty percent of the gas is exported out of Pennsylvania, which negates the often-stated claim that any tax increase will simply be passed back to Pennsylvania. No jobs will be lost. The drillers will hire only as many workers as they need. That number will be the same with or without a severance tax.”
[RWC] You may recall even the BCT finally conceded taxing Marcellus gas is “a tax that is paid by consumers” and acknowledged “Raising taxes could slow the economy.” No mention of that here, though.
Given his comment about “former Gov. Corbett and the GOP,” I assume Mr. Hayduk is a lefty. Folks on the left confuse me when it comes to taxes. When they want to reduce an activity, say tobacco use or gasoline consumption, lefties seem to recognize that increasing taxes reduces that activity by making current consumption too expensive for more people. When it comes to other taxes, however, lefties tell us they have no effect on economic activity (and some actually claim increased taxes spur economic activity!). All taxes decrease the disposable income/wealth a family or business can spend on or invest in any economic activity. Increased economic activity increases tax revenue, not higher tax rates. Therefore, the last thing you want to do is increase tax rates. This is both logical and proven by history time and time again.
“The claim that Harrisburg will take the money is a distortion at best. The money will come back to the school districts and influence property taxes beneficially.”
[RWC] While I’m not unalterably opposed to impact fees and/or severance taxes within limits, they don’t represent “found” or “free” money. For example, why should fees/taxes on Marcellus gas go for anything other than covering regulatory costs and local infrastructure issues specifically related to drilling? Anything else creates a slush fund for politicians to spend as is/was the case for Medicare and Socialist Security taxes.
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