Consumer Energy Alliance Mid-Atlantic Director Mike Butler penned a blog for ShaleReporter.com about how proposals for a severance tax of oil and gas production in Pennsylvania are again being considered – and why they shouldn’t be.
Pennsylvania is fortunate to sit on top of one the nation’s largest natural gas deposits, the Marcellus Shale. Just last year, thanks in part to increased natural gas production from Pennsylvania’s section of the Marcellus Shale, the U.S. surpassed Russia as the world’s largest producer of natural gas. For perspective, the Marcellus Shale now produces more natural gas than the entire nation of Saudi Arabia.
Natural gas production from Pennsylvania’s Marcellus Shale topped 3 trillion cubic feet in 2013, more than double the previous year’s production. That has created a rippling effect in employment. Pennsylvania employment in mining and logging, for instance, stood at 36,500 in April, according to Pennsylvania’s Quarterly Census of Employment and Wages – a 97.3 percent jump from 10 years earlier.
According to Jim Kunz, Business Manager for the International Operating Engineers, Local 66, their members are close to full employment because of the burgeoning shale gas development. “We are running at about 3 to 4 percent unemployment,” he said. “If we did not have Marcellus Shale, we would probably be closer to 20, 25 percent unemployment. It has provided a significant amount of employment for the members of this local.”
Job growth also extends beyond the energy sector. Frank Puskarich, owner of Hogfathers BBQ, says that his business is booming. “The opportunity isn’t [for] just the guy that’s actually drilling the hole…It’s everyone servicing the gas business.” He has added numerous staff members to keep up with demand as a direct result of shale energy production.
But Pennsylvania is in jeopardy of losing these benefits, if we are not careful.
Unfortunately, during this election year, proposals for a severance tax of oil and gas extraction are again being considered. But there are a number of reasons why they shouldn’t be.
Like all businesses, energy companies make decisions on where to operate by taking into account what it costs to invest in a venture versus the potential return in profit. A severance tax, if enacted, may shift that equation unfavorably for Pennsylvania.
Because this type of tax would increase the cost of energy production. That would mean fewer wells being developed, fewer landowners collecting royalty payments, and fewer small businesses that provide products and services to the industry.
It could also devastate job growth and stifle the type of capital investment that is helping the state grow by creating an unfavorable regulatory and tax climate for energy firms operating in the Keystone State. Likewise, increased taxes could be passed onto consumers.
In other words, this unreasonable tax would strangle the state’s record-setting energy production and derail its economic progress.
In fact, oil and gas companies operating in Pennsylvania already pay the highest effective corporate income tax in the U.S., at 9.9 percent. Several other energy rich states, including Texas and Wyoming, do not have a corporate income tax.
In addition to impact fees, corporate taxes and income taxes, energy companies are subject to sales tax, capital stock and franchise tax, permit fees, fines, and bonds for wells. A local impact fee imposed on companies operating in the state in 2012, for example, have generated more than $600 million, on top of the more than $2 billion the industry has paid in state taxes since 2007.
Ultimately, tax increases on Pennsylvania’s fastest-growing industry won’t solve the state’s long-term fiscal problems – but supporting a tax climate that will allow the natural gas industry to grow just might.