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Mark Green

Mark Green
Posted April 30, 2015

Now is Not the Time to Hike State Taxes on Oil and Gas Industry

The Hill’s Congress Blog (Weinstein): In response to significantly lower oil and natural gas prices, America’s energy sector is retrenching rapidly.  The drilling rig count has dropped by more than 50 percent over the past year, while companies large and small have announced sizeable layoffs and cuts in their capital budgets for 2015 and 2016.  Nonetheless, several states, including Pennsylvania and Ohio, are considering imposing or hiking production taxes—called severance taxes—on oil and gas operators.  These increases will be in neither the public’s nor the industry’s best interests.

Governors and state legislators should keep in mind that in today’s competitive environment, producers in their states are simply “price takers.”  What this means is that any factor increasing the marginal cost of production, such as new or higher severance taxes, will put that state’s operators at a competitive disadvantage.  The result will be lower production today and diminished investment in the future.

What’s more, as the experience of Texas and other energy producing states has demonstrated over the years, severance taxes are not dependable revenue sources because they rise and fall with changes in output and price.  With prices for oil and natural gas expected to remain low for an extended period, their contribution to total state revenues is likely to be quite small and not enough to offset any sizeable cuts in other taxes.  In addition, it’s never good public policy to increase the tax burden one specific industry as opposed to imposing or hiking taxes generally across all industries.

Read more: http://bit.ly/1Kxek97

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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.