Editorial: Gov. Kasich’s Proposed Severance Tax Reform Makes Sense – Will Benefit Ohioans

March 7, 2013 by 2 Comments

In this editorial, the Findlay Courier explains why Governor Kasich’s proposed reform of Ohio’s severance tax makes sense:

A lengthy debate over Gov. John Kasich’s proposed budget is under way in the Legislature.

It will involve the expansion of Medicaid, the governor’s school funding formula, and his tax package. Changes in the rates of severance, income and sales taxes are all part of Kasich’s far-reaching plan to keep the budget balanced.

Of the tax recommendations, a moderate increase in the severance tax, incurred when non-renewable natural resources like natural gas or oil are extracted (or severed), seems reasonable. It would allow the state to benefit from the rich shale fields of eastern Ohio.

The state’s severance taxes are among the lowest of all energy states.

Regardless of the price for a barrel of oil, the driller pays a dime per barrel for the severance tax and another dime in a conservation fee. Whether oil is selling for $35 or $150 per barrel, Ohio gets just 20 cents. The severance tax on natural gas is also low, at 3 cents (including a half-cent conservation fee) per thousand cubic feet (mcf). Whether natural gas is selling for $10 or $2.28 per mcf, Ohio gets just 3 cents.

Even under Kasich’s proposal, Ohio’s oil and gas taxes would remain among the lowest in the nation: 4 percent for oil and natural gas liquids, and 1 percent for gas.

And

To make it palatable to “no-new-tax” Republicans, he has coupled the severance increase with a 20 percent reduction of the income tax rate. While top-wage earners would see the greatest benefit, reducing the state’s income tax burden would go a long way toward creating a more jobs-friendly climate and speed economic recovery.

And

Meanwhile, gas and oil lobbyists are lining up in opposition to any increase. They claim it will discourage gas and oil exploration here, and cause Ohio to lose out on the benefits that would come from many jobs and related businesses created by increased drilling.

Those claims seem unfounded, however, considering the strong interest in Ohio’s shale.

Certainly, lawmakers will have to weigh the advantages and disadvantages of cutting income taxes and imposing state sales tax on more services, and there will likely have to be a considerable give and take before Kasich’s proposals are accepted. But increasing the severance tax to a level that adequately compensates Ohio for its natural resources, while still allowing it to remain competitive with other fracking states, is the right thing to do.

You can read the entire editorial here.

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Dispatch: Kasich’s Severance Tax Plan & Income Tax Cut is a Win for Ohio

December 5, 2012 by Leave a Comment

In this editorial, the Dispatch explains how Governor Kasich’s proposed revision of the state’s severance tax and resulting income tax cut would be a big win for Ohioans. Read more here:

It’s good that Gov. John Kasich isn’t giving up on his proposal to impose a reasonable tax increase on the drillers who stand to benefit from Ohio’s oil- and gas-rich shale resources, even though short-sighted legislators have stalled it for now.

Kasich said in a recent speech to the Ohio Farm Bureau Federation that he intends to eventually see a severance-tax increase, coupled with an income-tax rebate, become law.

Ohio’s current taxes on oil and gas extraction are drastically lower than those of neighboring states, some of which also are seeing a boom in extraction from the Marcellus and Utica shale layers. The increase Kasich proposes would leave the state in line with or still lower than many of the neighbors.

Most important, revenue from the tax would go not to fund more government, but directly back to taxpayers, in the form of income-tax rate reductions equivalent to whatever the severance tax generates in a given year.

This allows the whole state to benefit from the shale boom — a big improvement over the typical scenario, in which a small area rich in coal or oil enjoys a blast of temporary prosperity, only to be left with nothing but holes in the ground when the boom ends.

While any taxpayer would welcome a break on taxes, the rebate could be especially powerful for owners of small businesses, including farmers, whose business taxes are paid through personal income tax. A boost to those businesses could add a bit of steam to Ohio’s economic recovery, further amplifying and spreading the benefit of the boom.

Some Republican state lawmakers have blocked the severance-tax plan, either out of a knee-jerk opposition to anything including the word tax or deference to the oil-and-gas industry’s lobby.

The industry’s loud opposition to the idea is predictable, but it need not scare the legislature from acting in Ohioans’ best interests.

With Ohio’s severance taxes remaining well within the range of reasonable, and as long as Ohio sits atop a sea of carbon, drillers will want a crack at it.

You can read the original editorial here.

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Crain’s Column: Great Potential for Ohioans with Energy Boom & Tax Relief

September 12, 2012 by Leave a Comment

In this column by former Ohio Dept. of Agriculture Fred Daily, he discusses the great potential that Ohio’s booming energy industry offers Ohioans and how it could help offer Income Tax relief to the entire state. As viewed from Crain’s Cleveland Business, please read it below:

An economic boon is coming to Ohio. It has already begun in the eastern part of the state and is the topic of discussion in every eatery and watering hole in the hard-scrabble counties of Appalachia.

Tales of great wealth abound, local banks are being recapitalized, farmers are buying new machinery and mortgages are being burned. The talk of the town is how the Marcellus and Utica shale plays will revitalize eastern Ohio, and what kind of prosperity it will bring to Ohioans.

Many experts expect that this will be one of the most productive gas fields in the U.S. The natural resource bounty also includes oil and natural gas liquids, the valuable, highly-sought hydrocarbons which are the feedstock for plastics and other advanced polymers.

And, while some say the economic impact will be hundreds of billions of dollars, others say it could reach 1 trillion. We really don’t know for sure, but we do know that with sound public policies, including regulatory oversight, this boon can lead to tens of thousands of new jobs, spur job creation in related industries such as steel pipe manufacturing, oilfield supplies and petrochemicals, and help reduce poverty.

It will also enable Ohio and the U.S. to become more energy independent, which helps reduce our international trade deficits and even favorably impact our foreign policy. Gov. John Kasich metaphorically describes this opportunity as a bluebird that just flew in our window.

Perfect outcomes aren’t guaranteed, however. Economists warn that if we fail to adopt the right public policies we could suffer “the resource curse.” This term, usually associated with the extraction of minerals, describes a scenario in which a few get wealthy (often out-of-state companies), who then take the money and run. For example, Spain got the gold but the Incas got the shaft. Such practices led to the establishment of severance taxes.

Ohio has had severance taxes for 40 years but they beg to be modernized. Long before anyone ever heard of “horizontal drilling,” Ohio set its severance tax at 20 cents per barrel of oil. With oil selling for upward of $100 this year, Ohio’s tax translates to a rate of 0.2%. Now compare that with other major energy producing states, such as Oklahoma (7%), Texas (4.6%), Louisiana (12%), North Dakota (7%), Michigan (6.6%), and West Virginia (5%).

In other words, on a barrel of oil selling for $100, Michigan would collect 33 times the severance tax that Ohio currently would. West Virginia would collect 25 times our rate. And, amazingly, we have no severance tax at all on the valuable natural gas liquids.

As a fiscal conservative, I applaud Gov. John Kasich’s efforts to balance Ohio’s budget and bring meaningful tax relief to Ohio. As a farmer, I especially appreciate his efforts to eliminate the death tax. I also fully support his plan to cut Ohio’s income taxes by modernizing Ohio’s severance taxes. His plan uses all new severance tax proceeds to reduce our state income tax, relief that will go to every taxpayer in Ohio regardless of their income level. In my opinion, reducing Ohio’s heavy income tax burden (up to 6%) is essential to creating the jobs-friendly climate that will get Ohio back on track.

Under the governor’s proposal, Ohio’s oil and gas taxes would still be among the lowest in the nation (4% for oil and natural gas liquids and 1% for gas, phased in over several years). Most of it would be paid by out-of-state companies and their investors, and it would still be lower than what they would pay in their own home states.

This new rate would apply only to high-volume wells. The small conventional wells, producing less than 10 Mcf per day, would no longer pay any severance tax on natural gas production. This includes approximately 90% (44,500) of all conventional wells in Ohio.

All of this additional revenue, estimated to hit $500 million annually when the industry matures, would be earmarked for income tax relief. Most importantly, none of it would be used to grow government.

Pursuing tax policies based on the twin goals of “low” and “fair” furthers the jobs-friendly climate necessary to sustain the many industries that make Ohio great.

Gov. Kasich’s proposal is good public policy and it deserves the thoughtful consideration of the Ohio General Assembly.

You can read the entire column here.

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Editorial: Support the Governor’s Plan to Reduce the Income Tax for All Ohioans

July 14, 2012 by Leave a Comment

The Canton Repository recently wrote this editorial about Governor Kasich’s proposed severance tax adjustment and subsequent income tax cut for Ohioans. Read more here:

Can Republicans in the Ohio House come up with another reason for opposing Gov. John Kasich’s plan to raise the severance tax on oil and natural gas? Not that they should — the tax hike is a perfectly reasonable proposition that will benefit Ohioans in a big way. Thankfully, the drawback some GOP legislators are citing doesn’t pass the calculator test.

Kasich wants to raise to 4 percent the tax on much of the oil and gas extracted by horizontal fracturing. Some of his fellow Republicans say this will put a damper on drilling in the state. One House member said soon after Kasich unveiled his plan that she didn’t want to “cripple a fledgling industry when there’s so much potential there.”

No crippling on my watch, Kasich has said, because even with the increase, Ohio taxes would remain among the lowest levied by states where drillers do business.

This week, the accounting firm of Ernst & Young backed him up.

The new tax still would put Ohio 16 percent below average among major oil- and gas-producing states and 80 percent below the average for all taxes on drillers, the firm’s study found.

The state currently charges 3 cents per 1,000 cubic feet of natural gas and 20 cents a barrel for oil. “Two dimes,” Kasich has said incredulously.

Given the richness of the Utica shale formation in Ohio, including in Stark and Carroll counties, drillers have plenty of incentive to stay here.

And Kasich has plenty of incentive to push for the severance tax increase, which GOP legislators say they may study by the end of the year. It’s part of a great plan, which he pitched this way to state legislators (who promptly removed it from his midbudget review bill): “Every cent — 100 percent — of new tax revenue from the high-volume horizontal wells like those used in Ohio’s Utica and Marcellus shale formations will be used to reduce income taxes the following year. Each of Ohio’s nine tax brackets will be reduced to ensure that taxpayers of every income level receive a tax cut.”

What’s not to like? Anyone?

You can read the original editorial here.

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