With a revenue package to fund the 2017-18 state spending plan still incomplete, calls continue to grow for an additional tax on the state’s natural gas industry. However, a severance tax is not a panacea to the state’s budgetary woes. In fact, implementing a severance tax would actually have a negative impact on the state’s financial outlook – further slowing the state’s already stagnant economy.
One of Pennsylvania’s greatest competitive advantages is our affordable and accessible energy supply. The shale gas revolution has played a major part in helping to keep energy prices down in the Commonwealth. However, we are at risk of losing this competitive edge if state elected officials continue to look at higher energy taxes as a way to generate more tax revenue for the state’s General Fund. And make no mistake – a severance tax on the natural gas industry is a tax on energy.
There is a slew of misinformation regarding how Pennsylvania taxes the industry and if the industry is paying its “fair share.” Tax proponents often use the argument that Pennsylvania is the only state without a severance tax. However, Pennsylvania is also the only state to impose an impact tax on the industry. Since it was enacted, the impact tax has brought in more than $1 billion with revenues distributed to every single county in the Commonwealth to help fund critical local projects. Also, it’s important to note that the Commonwealth’s overall tax climate is more burdensome that other states with shale drilling. In fact, Pennsylvania’s Corporate Net Income Tax has the highest effective rate in the country. To say that the Commonwealth is letting drillers off the hook because we haven’t placed yet another punitive tax on this industry is comparing apples to oranges – especially since some drilling states don’t even impose a Corporate Net Income Tax.
Another fallacy is that the industry has to stay in Pennsylvania because the gas is here. But capital is fluid and companies will move capital if they are not able to be profitable in a certain location. For those that believe this will happen, all you have to do is look at the drilling counts – which have already seen a decline. Additionally, Pennsylvania’s burdensome regulatory and permitting climate place additional hardships on natural gas related companies that want to come and invest in the Commonwealth. The last thing we should be doing is singling this industry out by adding another punitive tax that will serve to make the Commonwealth even less competitive than other states in the Shale play.
We simply cannot tax our way into economic prosperity. Placing additional taxes on the industry to bring more revenue into the state’s General Fund is short-sighted and will not pay off in the long run. If we truly want Pennsylvania to reach its true economic potential, we need to create a business climate that is hospitable and welcoming to job creators. Rather than looking at punitive tax policies that will drive opportunity out of the Commonwealth, lawmakers should be looking at rightsizing our legal climate, reforming our regulatory environment and implementing pro-business policies. By allowing our private sector to thrive and prosper, our economy will grow generating more revenue for the state’s General Fund.