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.
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.
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.