Harrisburg, PA—A proposal by Pennsylvania House Democrats to levy severance taxes on natural gas would make Pennsylvania the most heavily-taxed natural gas producing state in the nation. At 39 cents per thousand cubic feet (MCF) of natural gas extracted, the Democratic proposal far exceeds even Governor Rendell’s original proposal, and dwarfs Texas’s rate of 7.5% of market value. The tax would increase in future years if and when gas prices rise, but would remain the same if gas prices fall.
“The pro-tax forces like to claim that every other state has a severance tax, but ignore the details. Every other state uses taxes on natural resources to lower other business taxes,” said Matthew J. Brouillette, President and CEO of the Commonwealth Foundation. “Pennsylvania businesses already are contending with the crushing burden of the eleventh-highest state and local tax bills in the nation—and the highest among all major natural gas-producing states. So, the nation’s highest severance tax would be on top of the highest corporate tax rate in the world.”
Current Natural Gas Severance Taxes
Source: Marcellus Shale Coalition
While the Democrats’ proposal is being sold as a tax to address the environmental and social costs of drilling, the proposal would send the first $75 million and then 60% of the remaining to the state General Fund. In total, 81% of the tax would go to the General Fund, while only 6% would actually go to communities where drilling was occurring.
“Lawmakers are selling the public on a tax proposal that doesn’t exist,” said Brouillette. “This new tax-and-spend plan has nothing to do with the environment. It’s simply extortion to continue the overspending in the General Fund budget, and to fund the pet projects of special interest groups.”
In fact, natural gas companies already are paying for both the costs of inspection and cleanup, and pumping millions into road and infrastructure improvement. Between fines, fees and existing taxes, Pennsylvania is one of the most expensive states in which to drill, and a survey of petroleum companies found that the Commonwealth is as desirable to drillers as Cambodia or Syria. All this, without the severance tax.
“At a time when state unemployment remains high, the last thing the legislature should do is send a message to a job and wealth-creating industry that any attempt to invest in Pennsylvania will be rewarded with a punishing tax burden,” added Brouillette. “We might as well put up a sign at the state border that reads ‘take your jobs elsewhere’—because that’s exactly what will happen.”
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EDITORS NOTE: The Commonwealth Foundation’s video series, Know the Drill: The Truth About Natural Gas, addresses the impact of natural gas drilling and taxation on communities, the economy and the environment. The videos, along with Facts & Myths about natural gas drilling, can be found at EnergyFactsPA.com.
The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.