The severance tax proposed by Gov. Tom Wolf is a very bad idea, says Rep. Stephen Bloom and ignores the reality that we’re already “taxing the frackers.”
Over the past six years, communities throughout our Commonwealth have been reenergized. Once desolate main streets now gush with commerce. Struggling small businesses— the family-owned corner store and the auto repair shop just off the square —thrive again, and new enterprises keep bubbling up. An economic miracle has put families back to work and pumped jobs and hope to residents who hadn’t tasted the opportunity for prosperity in generations.
The transformation flows from the remarkable ascendance of the world’s cleanest burning fossil fuel, natural gas. Here in Pennsylvania, natural gas production is growing faster than anywhere in the country, with safe Marcellus Shale wells now producing nearly one-fifth of the nation’s vital natural gas supply. And this unexpected emergence of abundant homegrown energy via hydraulic fracturing technology (“fracking”) is now replacing America’s shaky historical dependence on foreign dictators and tyrannical oil despots with the permanent security of self-reliance and lower prices.
In spite of the obvious societal benefits developing from Pennsylvania’s clean natural gas renaissance – fiscal, environmental and geopolitical – a significant number of people continue to ask one critical question: Why don’t we tax the frackers? Amazingly, the answer is simple: Been there, doing that!
Why the irrefutable fact that drilling companies already pay significant taxes in Pennsylvania isn’t more widely grasped remains a mystery, but to be sure, they are, to the tune of more than $2 billion according to Revenue Department data. Pennsylvania currently has the second-highest Corporate Net Income rate in the country, so just like other businesses in the state, the natural gas companies’ treasuries are being deeply drilled. Frackers are not exempt from our onerous business taxes.
In early 2012, Act 13 was signed into law, empowering municipalities to impose an “impact fee” on new gas wells, on top of the other Pennsylvania taxes the drillers pay. The $600 million in revenue generated by this fee helps communities address local drilling impacts by funding initiatives such as road repairs, environmental protections and emergency services. A share of the fee also goes to the state for distribution to regions that are not directly impacted by drilling, such as an area I represent — Cumberland County located in Central Pennsylvania, which received more than $220,000 last year. [Editor’s Note: Some of that money went to the Cumberland Valley Rails to Trails for improvements – see video below for what CVRT is all about.]
(I should note I voted against final passage of the impact fee, bucking Republican leadership, for the very reason that the fee, despite its name, is calculated and collected like the tax it truly is.)
Between our business taxes, our impact fee and the rising costs of our state-required environmental permits, drillers often face more challenging economic conditions in Pennsylvania than they do elsewhere. While some states do impose higher special taxes on the extraction or “severance” of the natural gas itself, those states offer drillers lower overall business tax rates.
Modern drilling rigs are large-scale high-tech investments, completely portable and very limited in number. Especially with falling gas prices (thanks in large measure to the abundant production of American natural gas), energy sector profit margins are thin. After each well is drilled, drilling companies must choose where they will next place their rigs to achieve the most viable rate of return. Pennsylvania is not the only state with sizable natural gas reserves. For example, Arkansas, Texas and two of our immediate neighbors, Ohio and West Virginia, also have abundant supplies. Since our impact fee was enacted in 2012, we’ve already seen a steady and troubling shift of rigs from Pennsylvania to other more competitive states.
Yet, still the question is raised by some in the highest realms of Pennsylvania political power: Why don’t we tax the frackers? In 2015, despite billions rolling in from taxes we already impose, there is an aggressive new push for more. Whether those asking the question are truly unaware that we DO tax the frackers or they are simply attempting to exploit the ignorance of the unaware, they are risking economic and social calamity for our Commonwealth and its citizens.
Imposing a new severance tax on our already heavily taxed gas drilling industry would plug the pipeline to the best era of opportunity for Pennsylvania citizens since the glory days of steel and coal, cutting off the flow of jobs, energy and tax revenues we need to secure Pennsylvania’s future.
Yes, we tax the frackers. A lot. More than most states. If we want to chase them out of Pennsylvania, we can tax them more.
Rep. Stephen Bloom is a member of the House Environmental Resources and Energy and Finance committees. Additionally, he serves as a member of the Joint Legislative Air and Water Pollution Control and Conservation Committee. This article reposted from Rep. Bloom’s website with permission.
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