The People of America's Oil and Natural Gas Indusry

PA Energy, Taxes and Golden Eggs

Mark Green

Mark Green
Posted March 6, 2015

More on the plan by new Pennsylvania Gov. Tom Wolf to increase taxes on energy production in the commonwealth.

As lawmakers mull over Wolf’s proposal to add a 5 percent tax on the value of natural gas at the wellhead, plus 4.7 cents per thousand cubic feet of gas extracted – effectively a 7.5 percent tax, according to Cabot Oil & Gas Corp.’s George Stark – the key issue is its potential effect on future energy development in Pennsylvania.

Certainly, fundamental economics holds that if you tax something more, you’ll almost certainly get less of it. And that should give lawmakers pause.

That’s because Pennsylvania’s existing, successful tax system already has generated $2.1 billion and distributed more than $630 million in local impact tax revenue to communities since 2012, including more than $224 million last year alone. Natural gas development supports hundreds of thousands of jobs in Pennsylvania, contributes $34.7 billion annually to the state economy and has boosted profits in more than 1,300 businesses of all sizes up and down the energy supply chain.

But Gov. Wolf wants more, saying the state is “getting a bad deal.” Yet, the energy tax hike he proposes conjures up the fable about a golden egg-laying goose. Higher energy taxes could put a damper on energy activity, and the state could be worse off. The Pittsburgh Post-Gazette reports:

Senate President Pro Tem Joe Scarnati, R-Jefferson, said the industry is poised to develop advanced markets and uses for natural gas, but new taxes would kill that promise. “I believe strongly, strongly, that this industry will pull out of this commonwealth, and that next level of development isn’t going to happen,” he said.

Triblive.com reports on possible impacts across the state economy from higher energy taxes:

(House Speaker Mike) Turzai spoke to reporters on a windblown hill at Dura-Bond Pipe, a manufacturer that intends to hire 150 people this year because of the thriving Marcellus shale industry, according to its vice president, Jason Norris. Norris, an Export native, said he could not estimate how a tax might affect the jobs. Such taxes tend to get passed onto consumers, he said. Dura-Bond Pipe employs about 350 people at a former Bethlehem Steel Corp. plant. “We are fighting for survival” against foreign manufacturers, Norris said.

The Philadelphia Inquirer (philly.com) reports that a number of officials are concerned about losing revenues they’ve seen from the existing tax system:

Pennsylvania's Marcellus Shale impact fee has channeled millions of dollars to areas affected by drilling, money local officials fear might be lost if Gov. Wolf's proposed severance tax on natural-gas production is adopted in Harrisburg. A parade of local officials testified Tuesday about the benefits their mostly rural districts have derived from the current impact fee. Some expressed concern that the governor's new proposal, which would quintuple the state levy on gas production, would drive the industry out of the state. “If you put it in and are successful, you're heroes,” said Alan M. Hall, chairman of the Susquehanna County commissioners. “If you put it in and it doesn't work, you're going to cripple the state.”

The reality is the governor’s proposal looks a lot like a solution in search of a problem, one that tests the old adage: If it ain’t broke, don’t fix it. Raising energy taxes risks slowing future energy activity, which would harm job growth and weaken the state’s economy. Safe, responsible natural gas development has been good for the state economy, good for local economies and good for Pennsylvanians. State lawmakers should reject the governor’s proposal so that the benefits of energy development continue to flow. API-PA Executive Director Stephanie Catarino Wissman:

“More growth means more jobs and more revenue. Higher taxes mean driving development away from Pennsylvania, costing jobs and the loss of revenue which can pay for education, transportation, healthcare, and other state programs. The governor should focus on choosing forward-looking pro-energy policies that will continue to benefit the commonwealth and its citizens.”

As state Sen. Scarnati, one of the authors of the current tax system asked:  “Why would we want to risk killing this golden goose?” Good question.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.