What changed the Governor’s mind? Recently, five companies bid $128 million, nearly double what was expected, to lease government land to drill for Marcellus Shale. Rendell concluded that this means they should be profitable enough to pay an additional severance tax.
The Governor’s defective logic ignores the fact the companies bid this price for leasing land because they are not paying a severance tax. Companies have a set profit line; if they are paying more through taxes, they will pay less for leasing land rights to ensure they meet profit goals.
Gov. Rendell concluded that “Exxon is the most successful company in the history of the world” and thus, it can afford to give the state more money. This should frighten people. Rendell is simply seeing another pot of money he can go after.
Rendell notes, “
My administration The people of Pennsylvania should profit from this” – as though paying $128 million in lease prices and an additional 18% of royalties to the state – not to mention taxes all businesses are subject to (corporate income or personal income tax, sales taxes, capital stock and franchise taxes, and property taxes) – is not enough.
Any severance tax should take into account the nature of the industry – as many states have delayed their tax until profitability, suspended it for small businesses, or reduced it in hard-to-drill areas – and should be tied directly to the social costs of drilling, not used as another slush fund for the Rendell administration.