What is the natural gas industry's "fair share" of taxes? The answer depends on the calendar year.
An analysis from the Independent Fiscal Office (IFO) finds the current "impact fee" is effectively a 5.5 percent severance tax due to a 16-year-low in natural gas prices. In other words, the natural gas industry is already paying a higher tax rate than what the Governor Wolf proposed in 2014.
As a reminder, Governor Wolf called for a 5 percent severance tax during his campaign to replace the impact fee and "put Pennsylvania in line with other natural gas producing states." Of course, many of those states do not have individual income taxes, corporate income taxes or death taxes.
Natural gas prices continued to fall in 2015, so Governor Wolf redefined "fair share" by adding a price floor. Under this policy, natural gas companies pay taxes on gas at $2.97 per Mcf (thousand cubic feet), even though the actual price of natural gas was below that number . . . and still is.
According to testimony by the IFO, Wolf's original plan would establish an effective 17.3 percent severance tax rate in 2016, by far the highest rate in the nation.
Now the Governor is redefining fair share once again by proposing a severance tax of 6.5 percent to collect an estimated $218 million in revenue. For context, that's about four times higher than Ohio's natural gas severance tax and higher than neighboring West Virginia's 5 percent severance tax.
On top of a severance tax proposal, the administration is formulating new natural gas drilling regulations and adding methane emission requirements. The cost of these rules is not yet known.
If the governor and lawmakers want Pennsylvania’s tax rates to reflect other energy producing states, they should cut the impact fee or eliminate other state taxes.
In a historic move, the US Supreme Court stayed the EPA's Clean Power Plan, otherwise known as Obama's energy tax or stealth cap and trade. The court’s actions halt implementation until legal challenges (brought by 25 states) play out. That means there is no deadline to submit a state plan. In fact it would be foolish for a state to expend the resources to develop and submit a state plan without knowing if the regulation will survive.
But that hasn't stopped the Wolf administration from moving full steam ahead. According to the governor's spokesman, “Pennsylvania will continue planning and engagement with stakeholders on the Clean Power Plan, pending final decision of this issue by the Supreme Court.”
Department of Environmental Protection Secretary John Quigley plans to complete work on Pennsylvania's plan and present it to the legislature by Memorial Day. That's before the Supreme Court will even hear oral arguments.
The EPA's plan to regulate coal out of the economy should be especially concerning to coal-heavy Pennsylvania. The regulations are estimated to increase electricity prices in the state by an average of 14 percent a year, according to the American Coalition for Clean Coal Electricity.
The national cost of the EPA plan has been estimated to be between $29 billion and $39 billion annually — with virtually no effect on global temperatures.
The administration has defended its choice to move forward with planning as a way to give certainty to businesses, but the Supreme Court's actions make that point moot. The only thing certain is states will be waiting months and even years to know the fate of Obama's energy tax.
A new analysis from NERA Economic Consulting projects Pennsylvania electricity bills will increase between 10 and 19 percent from 2022 to 2033—a consequence of a U.S. Environmental Protection Agency (EPA) plan to reduce carbon emissions. In fact, all 47 states covered by the EPA's "Clean Power Plan" would experience rate increases, including double-digit hikes in 41 states.
The Clean Power Plan is really Cap and Trade in disguise with an enormous price tag. NERA estimates the plan's annual cost to be between $29 billion and $39 billion. The Institute for Energy Research (IER) notes it’s at least,
three times greater than the cost of EPA’s (proposed) Mercury and Air Toxics rule, to which the U.S. Supreme Court stated: ‘It is not rational…to impose billions of dollars in economic cost in return for a few dollars in … benefits'.
What’s the benefit of this costly regulation? IER explains:
Carbon dioxide emissions will decline by less than 1 percent and global temperatures by less than 0.02 degrees Celsius by 2100. Policymakers should know that this costliest of electric power regulations actually achieves meaningless progress towards the goal that EPA uses to justify it.
As we’ve pointed out here, the plan is an extension of the Obama administration’s “War on Coal” that threatens at least 13,000 good-paying jobs in Pennsylvania and thousands more throughout the nation’s energy sector.
In a piece entitled “Obama’s Appalachian Tragedy,” the Wall Street Journal reports,
Since 2009, 332 coal mines in West Virginia have been closed, and 9,733 jobs—roughly 35% of the industry’s total employment in the state—have been lost.
With such a high price tag and thousands of jobs at stake Pennsylvania shouldn’t rush to complete a state plan this spring but rather take the two year extension granted by the EPA.
180 workers in CONSOL Energy’s coal division recently lost their jobs. Now, Pennsylvania’s legislature may be the only thing standing between the Obama administration and complete destruction of the state’s coal industry.
This week, President Obama announced finalized regulations to cut carbon emissions to a level that would practically ban the burning of coal for electricity—spiking utility costs and eliminating the jobs many Pennsylvanians count on.To comply with the regulations, states must submit a Clean Power Plan to the U.S. Environmental Protection Agency. Last year, foreseeing the dangers in a draft version of the regulations, Pennsylvania’s Republican legislature and governor passed a law requiring legislative approval before the state sends any plan to the EPA.
Presumably, this law would prevent Democrat Governor Tom Wolf from unilaterally submitting a plan that would harm Pennsylvanians. To date, Pennsylvania’s leadership has inspired 14 other states to introduce similar legislative oversight proposals.
Pennsylvania will use this as an opportunity to write a plan that could improve public health, address climate change, and improve our economy and power system.
If Wolf’s plan mirrors the EPA’s proposed rules, it will do none of these things.
In fact, a computer model estimates the regulations would reduce global temperature by a minuscule 0.018 degrees Celsius by 2100 — a reduction that would hardly influence climate and health.
And according to an Energy Ventures Analysis report, the regulations would increase combined annual gas and electricity bills in Pennsylvania by more than $1,000, or 46 percent, by 2020 compared to 2012. Industrial power rates alone would rise by 62 percent.
Nationally, the United Mine Workers of America estimates the regulations will suction $208 billion from coal communities over the next 20 years, while the North American Reliability Corporation predicts a dangerously less reliable power grid with “the potential for wide-scale, uncontrolled outages.”
As a Wall Street Journal op-ed notes, however, the regulations will fail without the cooperation of the states, and six governors have already decided cooperating is not in their citizens’ interests.
If Pennsylvania’s governor does not have the good sense to follow suit, the legislature must act. Sacrificing an industry that supplies 40 percent of the state’s electricity, contributes more than $4 billion to the economy and, most importantly, provides good paying job, is simply too high a price to pay.
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.
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