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.
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.
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.