At the top of Governor Wolf’s revenue wish list sits an even higher severance tax on natural gas. Yet, this tax would fail to balance the budget and cause further economic stagnation by suppressing existing revenue streams and leaving Pennsylvania with fewer jobs.
The governor’s most recent tax proposal included a 6.5 percent severance tax—amounting to an effective rate of 9 percent, which would be the highest severance tax in the country. The Independent Fiscal Office estimates it would produce an additional $349 million this fiscal year.
The severance tax is far from the steady revenue source needed to reduce the deficit. The natural gas industry is cyclical with periods of robust growth and decline. No one knows how long the state can depend on revenue from the Marcellus Shale developers.
Budget impact aside, perhaps the most dangerous severance tax myth is that Pennsylvania, unlike all other natural gas producing states, doesn’t tax natural gas drillers. The argument goes something like this: Surely a reasonable tax won’t drive out the industry or destroy jobs. After all, even ultra-conservative Texas levies a severance tax.
If Texas is really the model to follow, then any severance tax proposal should also include eliminating the corporate income tax, eliminating the personal income tax and streamlining Pennsylvania's regulatory regime.
Sadly, that’s not the type of severance tax the governor and lawmakers want. Their idea is to raise the special tax charged to drillers—now called an “impact fee”—when the industry is already struggling with year-long permit delays for permits that do not even exist across the border in Ohio, ongoing litigation to build critical infrastructure, and the highest effective corporate tax rate in America.
On Wednesday, Gordon explained the escalating problems within the Department of Environmental Protection. These regulatory issues have significant revenue consequences. The Marcellus Shale coalition estimates the over 560 well permits are backlogged at DEP, representing nearly four billion dollars in delayed capital investment.
Taxpayers shouldn’t be misled. Pennsylvania natural gas producers already pay more in taxes and regulatory costs than producers in competing states. Instead of cutting the wages of natural gas workers via tax hikes, lawmakers should be discussing how to attract more investment in the Marcellus Shale.