The Wall Street Journal recently wrote about Governor Kasich’s plans to support Ohio’s booming energy industry while providing all Ohioans with some economic relief in the form of an income tax cut. Read more here:
The U.S. fracking boom is leading an economic transformation, at least in the states with the wisdom to manage it well—c.f., gas-rich North Dakota’s unemployment rate of 2.9% versus gas-rich New York’s 8.9%. Less noticed is that it can also improve the tax climate, as evidenced by Governor John Kasich’s plan to convert Ohio’s energy wealth into a tax cut.
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Severance taxes are routine in energy states like Texas and Alaska, and they also commonly apply to other nonreplaceable resources like timber and coal. Mr. Kasich wants to modernize the tax structure now that Ohio is becoming an energy producer, but without enlarging government. Annual proceeds would go into a fund devoted to lowering all personal income tax rates dollar for dollar.
The proposal would raise the severance tax to about 2.7% of the market value of oil or gas, depending on the type of well. As the industry matures and production peaks, the tax would on present price trends raise between $459 million and $547 million each year, equivalent to a 5% across-the-board tax cut for each of Ohio’s nine brackets.
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The energy levy shouldn’t stifle development. A study by Ernst & Young for the Ohio Business Roundtable compared the proposed severance levy to those in seven competing states, including North Dakota, Pennsylvania, Texas and West Virginia. It found Ohio’s tax would be 16% lower than the average for wells producing dry gas, 40% for oil. Including all energy taxes, Ohio would be 40% and 48% lower than the average, respectively.
The plan is controversial in Ohio’s Republican-controlled legislature and among some Tea Partiers, and as with any tax increase the danger is that some future government will renege, pocket the revenue and return to raising income taxes. But the energy levy is sure to increase if production booms, and the Kasich formula ensures the money isn’t spent on new programs. Meantime, lower rates on income and capital investment are a net plus for economic growth.
You can read the entire article here.
Yeah for Governor Kasich! Finally, someone who isn’t afraid to take the bull by the horns and fix this mess Obama has done to our country!
this is great news and congratulations for your fine leadership. if you really serious about promoting the energy business, then get rid of the idiotic regulations that are constricting the drilling industry from doing what they do best.
Gov. Kasich should use the state surplus to help schools and local communities nor cut the state income tax.
A cut in state income tax will be more than offset by increase in local income taxes and an increase in real estate taxes for our schools.
Can someone help me understand what the severance tax is? It sounds to me like he will raise taxes somewhere else to lower taxes on other places. Where are taxes going to be raised that we as tax payers would get a break? If it is industry tax, how would that not hurt their outlook on expansion into Ohio. If we are changing the rules, why not also attack how strict EPA regulations are effecting production output and driving up the price of doing business? There has to be a line where we are good stuards to the environment but still able to run a business. Thoughts? Am I misunderstanding something?