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Wolf Administration Loses All Credibility on Severance Tax

cost of renewables - Tom ShepstoneTom Shepstone
Natural Gas NOW

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The Wolf Administration blew it at a PA Senate Appropriations hearing this week, proving just how little thought has gone into its severance tax proposal.

There’s no doubt the PA House Appropriation hearing was rough on the Wolf Administration when it came to its severance tax proposal, but the Senate hearing was a flash flood wipeout. Senator Scott Martin (Republican, Lancaster County) did the damage, and very effectively so, starting at 43:17 in this PCN video of the proceedings. It only took a few minutes.

wolf administration

I had never seen Martin in action before and it was definitely refreshing. He started off his questions by establishing two key facts. First, he noted Pennsylvania already has a severance tax called an impact fee. Secondly, he explained it generated what was, in effect, a 6.9% tax in 2015 and 5.0% last year, according to the Independent Fiscal Office. That’s how you do it; by setting the proper premise for your question and not accepting your opponent’s. I wish there more legislators in Congress who knew how to do that.

Martin then proceeded to question Secretary of Revenue Eileen McNulty and got her, in short order, to admit the following:

  1. The Wolf Administration proposed severance tax rate would be higher than 6.5% because it does not allow for the deduction of post production costs.
  2. Pennsylvania would be the only state with a severance that does not allow deduction of such costs from what is taxed. (McNulty tried to counter by saying Pennsylvania was the “only state that would allow for a credit of the impact fee” against the severance tax – completely ignoring the fact it is the only state that has an impact fee. It was a poor effort at deception by McNulty.)
  3. Natural gas commodity prices are ‘volatile’ but new pipelines should help raise both production and prices with respect to Marcellus Shale gas.

That last admission is an important one, of course. It means all the talk about how much revenue a severance tax would produce is purely speculative and none of it will ever happen without more pipeline infrastructure. The Wolf Administration will have an opportunity to demonstrate its understanding of the fact by quickly approving Pennsylvania permits for the Atlantic Sunrise pipeline.

If what’s happened to Utica Shale gas prices since new pipelines came on line also happens with Marcellus Shale gas it would welcome news for economic development in the Commonwealth and impact fee revenue as well as corporate and sales tax revenue would also increase, avoiding the need for an additional severance tax. That would be a win across the board for the Wolf Administration and the rest of us.

Meanwhile, my hat’s off to Senator Scott Martin, who knows how to ask good questions and get to the heart of a matter. He made it real easy to understand, didn’t he?

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4 thoughts on “Wolf Administration Loses All Credibility on Severance Tax

  1. Leaseholders already pay a tax on what the wells produce in the form of income taxes. If a severance tax is passed and the leaseholder has to pay it then it is double taxation on us. On top of that people who work in the industry pay income taxes plus whatever other taxes the state collects on it. What are they doing with all this money they are already collecting ?? Instead of increasing spending how about cutting wasteful spending.

    • Donald, stop making sense! There’s no such thing as wasteful spending in big government! I’m kidding of course. The chances of any government leaders cutting spending is long gone. All they care about is filling the coffers of those that got them elected. Which is a shameful practice that has no end in sight. If Gov. Wolf get’s his tax, you’re going to see a lot more people angry about how much they are being taxed and a sharp decline in employment in this state.

  2. Hi Tom,

    Is there anyway to actually see what Scott Martin said? I attempted to click you link, but get directed to a live stream of the meetings.

    • You have to go to the hearing video on the same page (not the live stream). Look under Senate hearings for the one with the Revenue Department and then go to the time specified in my post (43:17). Wish I could jus do clips but PCN video doesn’t make it easy.

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