The full economic benefits from drilling Marcellus Shale are substantial but not guaranteed; this is still an infant industry. Gov. Rendell even acknowledges that a tax at this early stage of development will negatively affect the industry – including jobs and economic growth. The severance tax will discourage new natural gas companies from investing. According to the 2008 Pennsylvania Economy League, more than 26,000 jobs in PA come from shallow oil and gas producers that are already only marginally profitable.
While proponents of the severance tax note that most other states have a severance tax, they fail to mention that states like Florida offered tax credits to small oil and gas producers to allow them to remain in business without Other states, like Oklahoma, Louisiana, and Texas put a moratorium on severance taxes, or reduced their severance tax in difficult to drill areas.
Drilling companies already pay the Corporate Income Tax or Personal Income Tax, Capital Stock and Franchise Tax, lease payments, and royalties. By not taxing the natural gas industry to death, the state stands to gain more in the long run.
Pennsylvania is already seeing a boom in business and innovation because of the lack of taxation. ARM is soon to release its new water purification system for drillers and environmental consultants are working with these gas companies to obtain their necessary permits. As of June 2009, there were 408 Marcellus Shale wells in Pennsylvania with another 300 to 400 new wells expected to be drilled this year.
There will inevitably be community costs to roads and bridges due the increase of usage by gas companies. However, it is misleading to state that the Severance Tax is needed to pay for these costs. Companies are already required by law to fix any damages cause to roads and bridges. The tax would also reduce what companies are paying to landowners, or the state, in royalty payments.
The decision to include this tax represents a short sighted grab for additional state revenues that will cost the state prosperity in the long run.