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Will Fracking Taxes End Ohio’s Budget Woes

Posted by on June 8, 2012
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Most Ohioans are now aware the Buckeye State may be the Saudi Arabia of natural gas due to advancements in horizontal drilling and shale fracking.  We are blessed to have massive deposits of shale in Eastern Ohio and twice-blessed that energy producers are eagerly leasing property and exploring with gusto.  At the same time, the forces of government (State and federal), are doing their level best to discourage the activity and eliminate the profit incentive (crucial to free markets) for the companies that put capital at risk.  Matt Mayer reveals the flaws in Governor Kasich’s plan to charge a 4% severance tax on energy from these new sources and reduce taxes on payrolls dollar-for-dollar.  Appealing to crass populism isn’t right regardless of which party plays the card.  The Governor is shifting revenue collection from wage earners to the employer/energy producers.  Of course, this will sell like Sunday morning hotcakes at IHOP.  Taxpayers get a break during the crucial 2012 campaign season–break out the bubbly!  But the problem in Ohio is, and has for quite some time been, the unchecked growth in spending.  Kasich and the legislators ran with tails tucked between their legs after public sector unions beat them like a rented mule on Issue 2 in November.  The Governor also watched his friend Scott Walker fight for his political life for the “high–crime” of making unions and teachers pay a reasonable portion of their pension and health care contributions.  But Scott Walker won big on June 6, precisely because people are disgusted with providing better compensation and benefits to state employees than they receive from private sector employers.  This is the moment to stop going after new taxes on business and confront the cost of government head-on.  A higher severance tax on Ohio’s energy finds may “eventually” have some merit, but not now, and not as a substitute for confronting unchecked growth in public sector union contracts. Yes, it’s necessary that we link these two topics.  “Revenue enhancement” cannot be discussed without seeing the motivation of the cheerleaders.  When a Republican Governor, AFSCME, the OEA and every progressive think tank are singing in unison on taxation, further research is demanded. There is a window of opportunity for Ohio to simultaneously grow jobs (through the  and increase prosperity while facing down public sector unions.  Governor Kasich can turn around the state by making the right moves, right now.  We have a potential to turbocharge the economy and government must resist the inclination to solve our problems on the backs of these risk takers.  A thousand progressive Ohio voices are gung ho with the Governor’s plan to increase the severance tax on natural gas. What’s lost in the argument is that the companies creating this wealth are already taxed five different ways: income, sales, severance, ad valorem (property) and commercial activity.  In 2010, the industry paid $32.7 million in taxes in Ohio and generated $988 million in gross state product.  This is small potatoes compared to anticipated new revenue per Kasich’s tax plan. In terms of revenue, Ohio could net between $666 million and $1 billion over the next five years through the new oil and gas tax structure under consideration. Ohio is on the cusp of unbridled economic activity. Governor Kasich and Ohio’s legislators must encourage this energy-based renaissance and understand their job is to remove obstacles to companies that can bring prosperity, even when they are the obstacle.
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