Natural Gas




Has Wolf Dropped His Unpopular Tax Demands?

JUNE 30, 2015

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.

Wolf Taxes Pie Chart

posted by NATHAN BENEFIELD | 08:16 AM | Comments

Why a Severance Tax is a Bad Idea

JUNE 29, 2015

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:

  1. 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.
  2. 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.
  3. We already have a severance tax. It's called an impact fee, but it hampers the economy like a severance tax.
  4. 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.
  5. 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?
  6. 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.

posted by DAWN TOGUCHI | 01:30 PM | Comments

Who Pays For a Severance Tax?

JUNE 22, 2015

Severance tax

Proponents of a new natural gas tax—which would be in addition to the existing impact fee (tax) and other taxes extractors already pay—ignore the consequences new taxes will have on working people. 

In contrast, the Independent Fiscal Office's analysis of Gov. Wolf's severance tax proposal finds Pennsylvania families and businesses will pay the tax through higher energy prices. Even though 80 percent of the tax will be borne by consumers in other states, Pennsylvania residents will still shoulder a significant burden.

Households earning less than $100,000 will pay $180 million more annually in higher utility bills as a result of Gov. Wolf's proposal. 

Tax Incidence for Pennsylvania Residents, FY 2018-19 
Net tax increase by household income under Wolf proposed budget, in millions
  Under $25,000 $25,000-$49,999 $50,000-$74,999 $75,000-$99,999 $100,000-$250,000 More than $250,000 Total, Households less than $100,000
Tobacco $126 $149 $96 $80 $78 $26 $451
Sales and Use $367 $616 $606 $512 $1,283 $721 $2,101
Personal Income $29 $270 $303 $268 $713 $658 $870
Property ($274) ($472) ($438) ($352) ($680) ($284) ($1,536)
Philadelphia Relief ($58) ($77) ($61) ($48) ($100) ($64) ($244)
Renter Rebate ($202) ($185) ($8) $0 $0 $0 ($395)
Corporate Net Income ($25) ($45) ($41) ($35) ($87) ($75) ($146)
Bank Shares $1 $2 $2 $2 $4 $4 $7
Net Severance tax $44 $56 $47 $34 $60 $23 $181
Total $8 $316 $506 $461 $1,271 $1,009 $1,291
Source: Independent Fiscal Office: http://www.ifo.state.pa.us/resources/PDF/Revenue_Proposal_Analysis_April2015.pdf

If enacted, Gov. Wolf's proposed tax would be the highest effective rate in the country.

Further, as I pointed out in recent testimony, the tax would hinder job creation and economic growth. Using the STAMP model developed by the Beacon Hill Institute at Suffolk University, we found the proposed severance tax, with no other tax changes, would result in 4,138 fewer private sector jobs in fiscal year 2017.

Encacting a severance tax won't result in free money from pots of gold found at the end of rainbows—it will be paid for by families through higher energy bills and by residents in the form of fewer job opportunities. 

posted by NATHAN BENEFIELD | 09:21 AM | Comments

The Invisible Severance Tax

JUNE 10, 2015

Severance tax

Did you know Pennsylvania imposes a severance tax on natural gas workers? It’s known as an impact fee, but it operates just like a severance tax.   

The fee is levied on each well drilled, and the fee amount is determined by a number of factors, including the price of gas and type of well. According to testimony from the Independent Fiscal Office (IFO), the fee is projected to generate $210 million for state and local governments this year. If this projection holds, the impact fee’s effective tax rate will be 4.7 percent. This figure almost matches the 5 percent rate Gov. Wolf called for during his campaign.

But it’s like the impact fee is invisible to many proponents of a severance tax, who point out Pennsylvania’s uniqueness in being the only gas producing state without a tax on natural gas. Even if this were true, shouldn’t policymakers strive to make Pennsylvania more competitive by keeping taxes as low as possible? Imposing an additional tax on an industry because other states have done the same is a poor justification.

Uniqueness, in this respect, isn’t a hindrance; it’s an asset.

Furthermore, of the states currently imposing a severance tax, most enjoy better tax climates than Pennsylvania. A higher severance tax only compounds this problem. If the goal is to make Pennsylvania a better place to live and work for everyone, workers should not be required to bear the brunt of higher taxes. Gov. Wolf’s push for a severance tax is a direct violation of this principle.

His severance tax proposal carries a whopping 17.3 percent effective tax rate with it, which would be the highest in the nation. Imposing this tax is sure to cause pain for employees in the gas industry. Critics dismiss such arguments, but it’s hard to believe taking more than $1 billion out of the natural gas industry and transferring it to state government will not have an adverse effect on the people whose livelihoods depend on Marcellus Shale.

There’s also a moral component here. Why should workers in one industry be singled out for higher taxes? Would a tax only on farmers or doctors be fair and appropriate? Most would say no. 

For too long, Pennsylvania's natural gas industry has been thought of as a quick revenue stream instead of the economic engine driving the state to prosperity. If the former mindset prevails, expect the latter to stall. 

posted by BOB DICK | 04:09 PM | Comments

Audio: The True Impact of a Severance Tax

JUNE 8, 2015

Gov. Wolf justifies his proposed natural gas severance tax with populist rhetoric, claiming Pennsylvania’s gas drillers aren’t paying their "fair share." This is far from accurate.

Gas drillers paid more than $600 million in impact fee taxes from 2011 to 2013 and $318 million in other state taxes since 2009. If these amounts don't constitute a “fair share,” what does?

CF’s Nate Benefield was on The Gary Sutton Show to take on the "fair share" claim and expand on his recent state Senate testimony in which he unveiled the true, harmful impacts of the proposed severance tax.

Nate explains how the severance tax will hinder industrial investment in Pennsylvania and lead to 4,000 fewer private sector jobs by 2017.

The severance tax would also hurt Pennsylvania’s families, including families earning less than $100,000, who would have to pay an additional $180 million–mostly through higher energy bills.  

Click here or listen below to hear more.

The Gary Sutton Show airs daily on WSBA 910AM in the York area.

Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.

And for mobile listening, get the SoundCloud iPhone and Android apps.

posted by JONATHAN REGINELLA | 02:48 PM | Comments

Natural Gas Severance Tax: An Economy Killer

MAY 6, 2015

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.

The economic depression of the gas industry noted by Mr. Martire continues to be manifested in cutbacks in southwestern Pennsylvania: 220 jobs lost at Noble Energy and 170 jobs at Consol Energy.

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.

posted by GORDON TOMB | 01:25 PM | Comments

Could Schools Be Harmed by a Severance Tax?

APRIL 2, 2015

As odd as it might sound, some rural schools could actually be harmed by Gov. Wolf’s efforts to increase education funding by imposing a severance tax on natural gas.

At least one school superintendent sees Wolf's Education Reinvestment Act as more of a threat than a help.

Dr. Kenneth Cuomo, superintendent of the Elk Lake School District in Susquehanna County, says, “The concern is that the tax could be passed on to landowners in the form of post-production fees that are assessed against royalties paid by gas companies”

To address such fears, Wolf’s legislation does include a prohibition on directly passing on the tax to landowners or leaseholders. But Bill desRosiers, a spokesman for Cabot Oil & Gas, notes the prohibition would be contrary to the practices of other states. In the end, simple economics indicates companies will find other ways of passing along the cost of the severance tax.

According to Dr. Cuomo, that's bad news for Elk Lake, because royalties the district receives from three wells—nearly $2 million thus far—could decrease:

That’s revenue for the district and losing it would require us to increase taxes to keep our buildings afloat.

Most of the people who make these proposals don’t live north of Interstate 80 (where much of the state’s gas is produced) and don’t understand their impact.

Apart from skimming royalties from landowners and the school district, the severance tax proposal would diminish the ability of companies to support schools in other ways—such as $50,000 worth of pipe Cabot Oil & Gas contributed to the Susquehanna County Career and Technology Center.

“The pipe was enough to supply our welding program for three years,” reports Dr. Alice Davis, administrative director of the center, which serves up to 500 pupils from seven school districts, along with 200-300 adult students. “Without that contribution, our taxpayers would have had to pay for the pipe.”

Schools being harmed by a natural gas tax is just one of the many unintended consequences of the governor’s education proposals. His approach takes more from the pockets of Pennsylvanians without addressing reforms that can impact the classroom performance far more than money ever could.

Spending more wisely, not just spending more, is the real solution.

posted by GORDON TOMB | 00:55 PM | Comments

Alternative Energy: The Promise That Never Pans Out

MARCH 13, 2015

Green jobs and the broken window fallacy

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.

posted by ELIZABETH STELLE | 02:00 PM | Comments

Families Benefit from Natural Gas Without Tax

MARCH 10, 2015

Of the many tax hikes in Gov. Wolf's  budget proposal, the natural gas severance tax on the surface seems less damaging to Pennsylvania families. But a severance tax could hit families in a very personal way, their natural gas bill.

For now, Lancaster OnLine reports that the average residential heating bill of UGI Utilities’ customers has dropped nearly 46 percent since 2008. The latest reduction of 3.8 percent–attributed to abundant supplies of Marcellus Shale gas–was instituted March 1.

Stated in terms of dollars, the average monthly bill has gone from $151 to $82 in the past seven years for 391,000 customers in 15 counties.

Those are but the latest benefits added to the gas industry’s billions of dollars paid in wages, impact fees, leases, royalties, dividends and taxes – and just one more example of why state government should not hamper the industry with unnecessary levies such as the governor’s proposed severance tax.

posted by GORDON TOMB | 08:40 AM | Comments

Fair Share? How Pennsylvania Gas Taxes Compare

MARCH 2, 2015

Pennsylvania is the only top natural gas producing state that doesn't tax drilling. Sound familiar? It's a favorite argument of tax proponents, but it misses the big picture. Pennsylvania taxes the natural gas industry many ways that don’t exist in other drilling states. For example, there is no corporate income tax or personal income tax in Texas or Wyoming, and the corporate income tax in West Virginia is 6.5%, compared to Pennsylvania’s 9.99% rate.

The chart below demonstrates that Pennsylvania's economy is far less inviting to natural gas development, even absent a severance tax.

Top Natural Gas Producing States 2013

States

Severance Tax on Natural Gas

Exemptions and Incentives for Unconventional Wells

Top Corporate Net Income Tax Rate

State and Local Tax Burden (as a percentage of State income/national rank)

1

Texas

7.5% of market value

Rate reduction appr. 2% for up to 10 years

none

7.5% / 47

2

Pennsylvania

2.1% *

 

9.99%

10.3% / 10

3

Louisiana

$0.03-0.13 per MCF

Severance tax suspension on horizontally drilled well for 2 years or until payback

8%

7.6% / 46

4

Oklahoma

7% plus 0.095% excise tax

Exempt from severance tax for 4 years or until gas production pays for the cost of the well

6%

8.5% / 39

5

Wyoming

6% of taxable value

Gas transportation costs subtracted from the taxable value

none

6.9% / 50

6

Colorado

2% - 5% based on gross income

Allows producers to deduct 87.5% of their property taxes paid to gov. from severance tax to state

4.63%

9% / 32

7

New Mexico

3.75%

 

7.3%

8.6% / 37

8

Arkansas

5%

1.5% on new discovery wells for 24 months and on high cost wells for 36 months (can get extension)

6.5%

10.3% / 12

9

West Virginia

5% + $0.047 per MCF

 

6.5%

9.7% / 19

10

Utah

3% - 5%

6 months exemption for development wells

5%

9.4% / 28

11

Alaska

25% - 50% net value

Reduction for all drilling in Cook Inlet basin and when gas in used in state; Limited tax credits for exploration

9.4%

7% / 49

12

Kansas

8% on gross value severed from earth

3.67% tax credit for ad valorem taxes paid, effectively reducing the severance tax to 4.33%

7%

9.4% / 26

13

California

<0.01 per MCF

 

8.84%

11.4% / 4

*Pennsylvania levies an impact fee (akin to a tax) based chiefly on the number of natural gas horizontal wells.
Sources: Energy Information Administration, Independent Fiscal Office, Tax Foundation

posted by ELIZABETH STELLE | 01:54 PM | Comments

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