In their editorial on a natural gas severance tax, likely to be part of Gov. Rendell’s budget proposal on Tuesday, the Patriot News highlights some facts that don’t ever make it into the Governor’s bullet-points.
While the headline severance tax in Texas is 7.5 percent, the state gives a discount to Barnett Shale drillers that reduces the tax to 1.5 percent. Similarly, in Arkansas, it has a base 5 percent tax, but it reduces that to 1.5 percent during the first 24 to 36 months of production.
The reason these states reduce the tax is that companies are investing millions, sometimes billions, in these wells. Those costs need to be recovered. The tax break is meant to be at about the “break-even point.”
Furthermore, they suggest that the tax be tied to environmental issues or to lower tax burden for all Pennsylvanians. (They fail to mention how much gas companies are already giving for cleanup, such as bonding for road repairs).
On the other hand the Philadelphia Inquirer sees nothing more than a pot of money to underwrite out-of-control spending. In fact, they even suggest we tax natural gas to subsidize another industry – that of “alternative energy”, which is not only already subsidized, but enjoys a mandated market.
Some of the revenue should also be set aside to invest in building the state’s green economy. We already have incentives for alternative energy companies. These could be expanded with a portion of the extraction-tax revenue. Ultimately, the state’s energy sector should include natural gas, solar and wind.
Some of the money must also go to the general fund. In tough economic times, the state can’t afford to turn away revenue from a new source. Most businesses are hurting right now and paying less in taxes. It’s only fair that companies making big profits from drilling pay their fair share.