Throughout this state budget debate, Gov. Wolf has touted his natural gas severance tax to fund education. And some reporters refer to the severance tax as the "cornerstone" or "centerpiece" of his plan.
Except it isn't. The severance tax makes up a slim portion of Gov. Wolf’s proposed tax increases. In fact, his plan to tax health care and day care would raise more revenue than slapping an additional tax on the natural gas industry.
He never talks about his sales tax proposals—probably because they are so unpopular. His entire tax plan couldn't garner one single vote in the House. It failed 0-193. Yet, he hasn't said whether he is still demanding a $4.6 billion tax increase.
Even if Gov. Wolf has dropped the majority of his massive tax hikes, that’s no reason to accept a new severance tax. As Dawn pointed out yesterday, the severance tax is bad for all energy consumers, no matter your income level.
As lawmakers work on passing a state budget, one of Gov. Wolf's top priorities—a severance tax on the natural gas industry—is being hotly debated.
Here are six reasons why a natural gas severance tax is a bad idea:
- Middle class families and businesses will pay for it. Households earning less than $100,000 will pay $180 million more annually in higher utility bills as a result of Gov. Wolf's proposal.
- Jobs would be lost. According to a recent analysis, a proposed severance tax, with no other tax changes, would result in 4,138 fewer private sector jobs in fiscal year 2017.
- We already have a severance tax. It's called an impact fee, but it hampers the economy like a severance tax.
- Gas companies already pay every single tax that businesses in Pennsylvania are required to pay. A severance tax would unfairly punish one type of industry in Pennsylvania to provide funding for legislative interests that have nothing to do with natural gas.
- Any claims of the gas industry needing to pay their "fair share" are bogus. Gas drillers paid more than $800 million in impact fee taxes from 2011 to 2014 and $318 million in other state taxes since 2009. If these amounts don't constitute a “fair share,” what does?
- Punishing the gas industry with higher taxes punishes workers. Private sector labor leaders have bemoaned the reduction in man hours already under way. According to the vice president of the Laborers’ International Union of North America, "If you excessively tax the shale industry, you risk hurting employers, workers and communities across the state."
In the end, a severance tax would hurt the very people Governor Wolf claims he is trying to help.
Gov. Wolf proposed a natural gas extraction tax on Pennsylvania’s oil and gas industry to make drillers pay what union special interests dub their "fair share."
In testimony to the Pennsylvania Senate Environmental Resources Energy Committee and Finance Committee, CF's Nate Benefield explained the harmful impact the severance tax would bring to not just the oil and gas companies, but to all Pennsylvanians.
The Independent Fiscal Office projects that Pennsylvania families earning less than $100,000—who already shoulder some of the highest taxes in the country—would have to shell out an additional $180 million, largely through higher energy bills, because of the severance tax.
Rather than helping the middle class, the natural gas extraction tax would make their burden heavier.
Benefield notes that the industry paid more than $600 million in impact fee taxes from 2011 to 2013 and $318 million in other state taxes since 2009. Imposing an additional tax would have a detrimental impact on job growth. According to a STAMP model developed by the Beacon Hill Institute at Suffolk University, this severance tax would result in Pennsylvania having 4,000 fewer private sector jobs by 2017.
An Independent Fiscal Office testimony, also delivered yesterday found the effective tax rate under Gov. Wolf’s proposal would be 17.3 percent in the first year, given current prices. This would give Pennsylvania the highest severance tax rate—on top of existing taxes—among all states. It would give gas and oil companies less incentive to invest their resources in Pennsylvania, a problem for a state whose drilling industry currently ranks 56th out of 156 possible locations.
From labor unions to local chambers of commerce, community leaders are expressing a lot of anxiety over Governor Wolf's natural gas severance tax proposal.
The proposed tax “is a Wyoming County economy killer,” says Gina Severcool Suydam, executive director of the county’s chamber of commerce, in a letter to the Scranton Times Tribune.
Ms. Suydam attributes to the gas industry impressive economic gains in the county between 2007-2012:
- 29 percent in average weekly wages — from $700 to $904.
- 148 percent in average weekly wages in the natural resources and mining industry — from $642 to $1,594.
- 134 percent in annual payroll — from $273 million to $639 million.
The biggest threat to the industry now is the proposed severance tax, says Ms. Suydam. It would be a serious additional cost burden in maintaining the competitiveness of Pennsylvania gas, consuming any advantage our producers currently have over gas from other areas.
Then there is Dennis Martire, vice president and Mid-Atlantic regional manager of the 40,000-member Laborers’ International Union of North America, who is quoted in a recent news release:
We already have seen a reduction in pipeline man-hours over the past two years related to falling gas prices,” reports Mr. Martire. If you excessively tax the shale industry, you risk hurting employers, workers and communities across the state.
Adding a tax to the current economic struggles of a promising industry would be ill advised. Or as Speaker of the House Mike Turzai (R-Allegheny) says:
The governor’s approach on a severance tax is punitive in nature and threatens to severely hurt hard-working Pennsylvania laborers, negatively impact family-sustaining jobs and shut down production and downstream benefits for all Pennsylvanians.
The radical environmentalist group and corporate welfare lobbyist PennFuture has updated an absurd study about the "subsidies" Pennsylvania taxpayers pay for fossil fuels. While we oppose subsidies for any industry, most of PennFuture's "subsidies" are the absence of higher taxes on consumers.
PennFuture's analysis show less than $60 million in actual direct subsidy for fossil fuels (some of which is for alternative energy programs). What they consider a "subsidy" is not taxing certain goods and services.
Most of their "subsidy" total comes from not applying the sales tax to gasoline and electricity. That is, taxpayers would "save" by paying more in sales tax at the pump and in their heating bills.
But wait, you must be thinking, don’t we have a gasoline tax and an electricity tax?
Why yes, yes we do. They are claiming we are subsidizing gasoline by taxing it, but not taxing it twice.
- Almost 44 percent of these "subsidies" are for NOT imposing the sales tax on gasoline. Yet gasoline is taxed separately under the Oil Company Franchise Tax. In fact, as of 2015, Pennsylvania has the highest state gasoline tax in the nation.
Gasoline is exempted from the sales and use tax for that reason and that reason alone—it doesn't make any sense to double-tax a product. To suggest state taxpayers are "subsidizing" gasoline production by imposing a tax on gasoline (but not two taxes) is beyond ridiculous.
- Another 20 percent of these "subsidies" are for not imposing the sales tax on electricity and heating fuel. Again, these utility bills are taxed separately under the Gross Receipts Tax. Making consumers pay another tax on their electric bill or heating bill does not repeal a subsidy, and in certainly doesn't save taxpayer.
Both of these tax exemptions—making up almost two-thirds of PennFuture’s estimates of "subsidies"—suggest we should impose taxes on top of taxes on consumers at the pump or in their utility bills. Either PennFuture doesn't understand how taxes work, or are deliberately misleading their readers, but either way, they what they are suggesting is higher taxes on families.
Other "subsidies" include not taxing the government for its use of fuel (because we don’t tax the government for anything) and not imposing property taxes on the value of natural gas. This is a tax that would hit homeowners; it is not a subsidy for the businesses.
PennFuture seems to have no idea what a subsidy actually is. Ironically, they are lobbying for new subsidies, specifically $225 million in subsidies for alternative energy under Governor's Wolf budget proposal.
Worse yet, these subsidies will come from borrowed dollars. Governor Wolf wants to borrow funds and pay it back (with interest) using a new tax on natural gas severance. In other words, PennFuture not only wants to double-tax fossil fuels, they want to place a special tax on natural gas to subsidize cronies in the wind and solar power industry.
It's clear that these subsidization schemes not only punish taxpayers, but fail to create jobs. Pennsylvania continues to see anemic job growth, despite $2.9 billion in taxpayer-financed alternative energy loans and grants since 2003.
One third of the $675 million in new corporate welfare under Governor's Wolf budget proposal is reserved for alternative energy programs. In this week's House budget hearings Community & Economic Development Secretary Dennis Davin defended the new borrowing saying,“We think when you look at those opportunities as a whole ... Pennsylvania will do much better.”
But history indicates otherwise.
A common target of Gov. Rendell's "economic development" schemes was alternative energy companies, who enjoyed $1 billion in renewable energy grants, tax breaks and loans, but only created 8,300 "green" jobs, costing taxpayers over $120,000 per job. In other words, using tax dollars to subsidize green jobs resulted in a net loss.
Worse yet, taxpayers don't have the funds for this program. The Governor wants to borrow the money and pay it back with natural gas severance tax revenues.
Even if placing more debt on Pennsylvania families created jobs, it is still wrong to ask the natural gas industry to subsidize their competitors. Kevin Sunday with the PA Chamber put it well, "It's very ironic that Gov. Wolf expects one industry to subsidize its competitors," he said. "We certainly shouldn't be picking winners and losers."
At the end of the day, Pennsylvania has given more than a billion dollars to alternative energy companies with nothing to show for it: from 1991 to 2014, our state ranked a dismal 45th in job growth. Handing out tax dollars based on political calculations is stifling economic progress. Common sense tells us it's time to try a different approach—letting Pennsylvanians keep more of their money.
What a shock! A gas exploration company says it is reevaluating plans to drill for natural gas in Southwestern Pennsylvania because of Gov. Wolf’s proposed severance tax, reports TribLive.
Paul Burke, vice president and general counsel of Huntley & Huntley Energy Exploration, is quoted by the website: “We have to invest serious capital in our business. We want to see what’s going on in this commonwealth before we invest.”
The company made its concerns known in a letter to Harmar Township, saying it was withdrawing a subsurface lease offer for approximately 90 acres of township-owned land. The company had proposed a payment of $3,500 an acre, plus a 15 percent royalty.
Harmar township's supervisor, Bob Exler, expressed his disappointment: “It’s big money for a small township. It was something I thought would be a windfall for us, and I’m sad they canceled.”
We can only guess at the loss of jobs, taxes and associated business, not to mention the other drillers who may be reversing plans without publicly saying so.
Meanwhile, numerous companies across the state have announced reductions in investment and employment because of excess supply and resulting decreases in energy prices. Among them are Chevron Corp., Range Resources, Antero Resources, Rex Energy, PennEnergy Resources, Cabot Oil & Gas Corp. and Universal Well Services. Tax uncertainty could even jeapodize the building of a Shell petrochemical plant in Beaver County.
While the cutbacks are considered by many to be temporary, they belie statements of proponents for additional taxes on the industry that insist companies won't leave Pennsylvania's rich natural gas desposits.
The current business climate for the industry underscores that energy companies have risks as well as rewards to consider. Just as other businesses, they should not be treated as money trees to be picked by politicians with budget gaps to fill.
The stories continue: more jobs, increased tax revenue and cheap energy, all from the free-market production of Marcellus Shale gas.
Take last week's report from the Central Pennsylvania Business Journal: A study commissioned by Sunoco Logistics says two of its pipeline projects will produce more than 30,000 jobs across Pennsylvania, including as many as 400 permanent positions once the project is complete. The projects are also projected to generate $23 million in personal income tax and contribute $4.2 billion to the state’s economy.
The pipeline project is just one isolated example:
- Dura-Bond’s Steelton plant “plans to add 150 jobs after being awarded a contract to produce $400 million worth of pipeline for the 540-mile Atlantic Coast Pipeline in West Virginia, Virginia and North Carolina,” according to PennLive. The work at the Dauphin County facility is expected to extend through March 2017.
- Sunoco Logistics’ Marcus Hook Industrial Complex — an 800-acre energy hub for the processing, storage and export of natural gas products — continues to expand and add jobs as Delaware County officials work to identify additional business opportunities for it, reports the Philadelphia Inquirer. Sunoco Logistics’ pipelines serve the complex.
- New Jersey’s largest gas and electric utility will decrease the typical residential gas bill by 31 percent in February and March, according to NorthJersey.com. Public Service Electric & Gas “has repeatedly cut the cost of gas to its lowest rate in 14 years as a result of low-cost gas from the Marcellus Shale formation in Pennsylvania and surrounding states,” the website said.
A new tax on Marcellus Shale drilling could put at risk these jobs and countless future projects. The economic benefits from a revived natural gas industry are impressive. Marcellus Shale counties saw more than double the employment growth of non-Marcellus counties last year. While government programs continue to hand out individual grants and loans, they can't compare to the industry's track record of improving employment for entire counties with zero cost to taxpayers. Government programs simply pale in comparison to the revitalization spurred by natural gas.
Policymakers made significant strides over the past legislative session to increase school choice, save taxpayers from waste and abuse in unemployment compensation, and protect students. While critical reforms remain, it's worth celebrating these policy victories from the past legislative session.
Six Policy Victories in the 2013-2014 Legislative Session
1. Banned the practice of "passing the trash." Act 168 of 2014 prevents teachers accused of abuse from quietly resigning and relocating to a new school without having to inform that new school of their alleged misconduct. The law also strengthens the background check process and prohibits school districts from entering into "confidentiality agreements" that suppress abuse allegations. Commonwealth Foundation supported ending this disturbing practice while government unions took a neutral position.
2. Reduced the state debt ceiling. In 2013, lawmakers reduced the total amount of debt allowed under RACP (Redevelopment Assistance Capital Program) by $600 million. Act 77 of 2013 also provides greater accountability, oversight and transparency regarding how RACP grants are awarded.
RACP uses borrowed money—paid back by taxpayers with interest—for "economic development" projects, or corporate welfare. We’ve regularly exposed the most controversial uses of RACP funds, such as the Arlen Specter Library, Tastykake's corporate headquarters, numerous sports stadiums, and a $3 million grant to the Second Mile, the charity founded by convicted child molester Jerry Sandusky. An effort to further reduce the RACP debt limit to $2.95 billion passed the state House in 2014, but stalled in the Senate.
3. Strengthened school choice for children and their parents. Lawmakers consolidated the Education Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) into one statute, while simplifying and streamlining the application process. This also allows unused credits to be shifted from one scholarship program to another. Thanks to Act 194 of 2014, more credits will be utilized and thousands more scholarships can serve as a lifeline to students trapped in failing schools. Commonwealth Foundation has consistently pushed for greater school choice options, including the creation of the OSTC.
4. Reformed taxes for small businesses and more. Lawmakers enacted some tax reform last session with Act 52 of 2013. Lawmakers increased the Net Operating Loss (NOL) Cap, created a new deduction for small start-up businesses, and exempted family-owned businesses from the inheritance tax. While Commonwealth Foundation has advocated for broad-based tax reform, these measures are a step in the right direction towards lessening the tax burden on job creators.
5. Protected jobs for Pennsylvanians in the energy field. New EPA regulations require expensive, unproven technologies that would kill jobs and bankrupt companies. Commonwealth Foundation has documented how destructive these new regulations are to existing PA jobs. Act 175 of 2014 preserves state control of the energy industry by allowing the state legislature to publicly reject a state carbon emissions plan.
6. Ended "triple-dipping" for government employees. Act 75 of 2013 stops former state employees from receiving both retirement and unemployment benefits. The law ends "triple-dipping," where an individual retires and collects a public pension or private retirement benefit and then temporarily returns to work, only to collect unemployment compensation when leaving the job. This one change will reap an estimated million dollars in savings this fiscal year.
Milestones of Note
Liquor Privatization Progress. Three Pennsylvania governors have attempted to privatize the liquor store system. In 2013, for the first time in state history, the PA House passed a bill that would end the government liquor store monopoly. Commonwealth Foundation has pushed for full liquor privatization by exposing the contradictory mission and gross carelessness of the PLCB. Lawmakers can build upon this historic accomplishment in the new session.
Awareness and Advocacy for Paycheck Protection. In 2014, thanks to lawmakers and teachers speaking out through CF's Free to Teach project, a version of paycheck protection passed committees in both the House and Senate. In the new session, lawmakers have a golden opportunity to finish what they started and pass paycheck protection, now known as Mary’s law.
Pension Reform Progress. Legislation to put new state employees and school teachers into a defined-contribution retirement plan (like a 401k) passed committees in both the state House and Senate. Government union leaders, defending the status quo, prevented these bills from coming up for a vote. For years the Commonwealth Foundation touted the merits of defined contribution retirement plans and warned about the impending crisis in public pensions—that crisis is now reality.
The war on coal will be a catastrophe for consumers, according to a new analysis of energy prices under new U.S. Environmental Protection Agency (EPA) regulations.
According to an Energy Ventures Analysis report, combined annual gas and electricity bills in Pennsylvania will increase by more than $1,000, or 46 percent by 2020 compared to 2012. Industrial power rates alone will increase by 62 percent.
The November report—"Energy Market Impacts of Recent Federal Regulations on the Electric Power Sector"—says that Pennsylvania is among five states that "would bear the greatest increases in annual residential power bills." The others are Texas, Mississippi, Maryland and Rhode Island.
Commissioned by Peabody Energy, a St. Louis-based coal company, the report calculates state-by-state effects of a number of EPA regulations, including the Clean Power Plan to reduce carbon dioxide emissions.
Nationally, gas and electricity costs for all customers will increase by $284 billion, or 60 percent, says Energy Ventures.
The increase will result "in large part due to an almost 135 percent increase in the wholesale price of natural gas" as EPA regulations force coal out of use and drive up the demand for gas, says the report.
Numerous business groups and politicians are objecting to the Clean Power Plan, including Pennsylvania’s Democratic senator, Bob Casey, who says that the proposed rule for CO2 emissions, "imposes a disproportionate and unfair burden on Pennsylvania." And the Supreme Court recently announced it will review the regulations in the spring.
Energy Ventures also takes into account the economic effect of rules recently implemented to regulate ozone and particulate matter, the interstate transport of air pollution, mercury, and haze in public parks.
"Our analysis is the first to fully examine the combined economic impacts of the EPA's long list of proposed and finalized regulations on the electric power industry," says Seth Schwartz, Energy Ventures president. The Clean Power Plan is based on flawed assumptions, he says.
From skyrocketing energy bills to killing green jobs to raising manufacturers' cost, the EPA’s actions are harming all Pennsylvanians.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.