President of Let Freedom Ring USA, Inc.
Colin Hanna speaks out about the danger of a severance tax in response to COVID-19 and says a virus is not an excuse for a job-killing severance tax.
The impact of the COVID-19 pandemic has shed a spotlight on America’s age-old tension between federal and state governments. Our country was founded on the concept of state sovereignty with a federal government whose authority was limited to certain specifically enumerated powers. While those powers may have gradually expanded over the centuries, each Governor must still assess and determine how their state will react to crises. Crisis management requires a balancing act of addressing both the current public health crisis and the economic uncertainty clouding our future.
Historically, Pennsylvania has favored an open path for businesses and innovation to flourish. Not so long ago, this was showcased by the development of energy production and an energy transportation capacity that made Pennsylvania an especially strong player in the American economy. But, if Pennsylvania is to make a swift economic recovery, it cannot hinder business development or increase the burden on this critical part of the tax base.
Unfortunately, Governor Wolf’s proposed severance tax on the natural gas industry has the potential to cripple our recovery. This is the sixth time in six years the Governor has pushed this insufferable tax.Now offered as a remedy for growing state debt, it was previously floated to fund infrastructure projects. The severance tax seems to be Governor Wolf’s cure-all for whatever the crisis of the moment is.
In regard to the COVID-19 crisis, the recovery must start with an acceptance of reality. It will undoubtedly take years to recover from the economic damage caused by the pandemic, no matter the magnitude of federal stimulus or lending. With that in mind, our economic recovery policy needs to be viewed through a long-term lens, and decisions that might make us feel better in the short-term but have negative long-term consequences should be avoided.
First, small businesses and family owned operations will continue to be important drivers of our economy. Governor Wolf was right to quickly rollout a request for ‘disaster declaration’ status for all counties from the federal Small Business Association (SBA) and to encourage the General Assembly to improve funding for the Pennsylvania Small Business First Fund.
Second, large scale operations and capital expenditures such as infrastructure and energy projects must be provided the certainty of continuity. The natural gas industry alone has been a driver of over 300,000 jobs and nearly $50 billion in economic activity while saving households and commercial users over $30 billion in energy costs from 2006 to 2016.
An additional tax on the energy industry runs counter to the objective of economic recovery. In fact, the state already administers a severance tax on natural gas, but disguises it under a different name. As NaturalGasNow editor Tom Shepstone noted “Yes, the existing impact fee is a severance tax. Let’s not forget that when the cries begin to rise once more for a severance tax on the false basis that Pennsylvania has never had one… It was called an impact fee for no other reason than our Governor at the time didn’t want to be known as a fellow who raised taxes.”
Now is not the time for Gov. Wolf raise taxes on an industry that already shoulders a hefty tax burden and contributes strongly to the state’s economy. The strength of Pennsylvania’s natural gas industry has already suffered egregiously during the ongoing crisis. Double taxation will never provide a fair business environment, nor will it give companies the confidence to resume hiring or start new projects. For an industry already on its knees, Gov. Wolf’s severance tax will further hamper a critical sector of the economy.
There is little doubt that the COVID recovery will be slow. By no means can a switch be turned and full economic demand and operations resume. Likewise, by no means can Pennsylvania make a recovery by needlessly punishing key sectors of the economy in the form of a natural gas severance tax.
Colin Hanna is former County Commissioner in Chester County and the President of Let Freedom Ring. This article originally appeared in The Daily Local News and is reposted here with permission of the author.