Why Pa. mustn't levy new tax on gas drillers

Marcellus Shale drilling site near Latrobe, Pa. Calls for a severance tax imply that these natural-gas businesses are not already paying taxes.
Marcellus Shale drilling site near Latrobe, Pa. Calls for a severance tax imply that these natural-gas businesses are not already paying taxes. (LAURENCE KESTERSON / Staff Photographer)
Posted: August 07, 2011

Jim Cawley

is lieutenant governor

of Pennsylvania and was chair

of Gov. Corbett's Marcellus Shale Advisory Commission

What if there was an industry that had 70,000 Pennsylvanians working in it - or providing supplies to it - and that industry was being lobbied to move to West Virginia? Wouldn't Pennsylvanians rightly demand that our leaders do everything possible to keep these jobs here? From loans for capital improvements to tax incentives, wouldn't everything be on the table?

What if there was a new industry - one projected to hire 200,000 Pennsylvanians over the next decade - that was debating whether to set up a corporate headquarters in Edmonton, Alberta (Canada), or Williamsport, Pa.? Wouldn't we expect our elected officials to meet with those industry executives and promise them anything and everything in tax breaks and incentives to encourage them to pick Pennsylvania?

These are not hypotheticals. There is, indeed, a new industry that employs 70,000 Pennsylvanians and, according to Pennsylvania State University, is likely to hire up to an additional 200,000 Pennsylvanians in the next decade. And this industry does not want tax breaks, government loans, or incentives to make Pennsylvania its home.

The new and growing natural gas industry - working to develop the Marcellus Shale - is a vibrant industry that is transforming our economy, creating jobs, and lowering the cost of energy. (The use of cleaner-burning natural gas will have the added benefit of improving our air quality.)

So why are critics of this industry so focused on creating new, punitive taxes on it?

The constant drumbeat for the imposition of a so-called severance tax is completely misguided. Having just completed my work as chairman of Gov. Corbett's Marcellus Shale Advisory Commission, allow me to point out a few facts.

First, calls for a severance tax imply that these businesses are not already paying taxes. Not true. Since 2006, this industry has paid almost $1.1 billion in taxes - and counting. In just the first six months of 2011, more than $292 million in taxes have been paid, more than the industry paid in all of 2010.

That revenue is in addition to more than $214 million in income taxes paid by natural gas employees and landowners leasing their land to gas companies.

The development of the Marcellus Shale has generated more than $1.3 billion in tax revenue. These taxes help pave our roads, educate our children, and maintain parks across the state - including in my home, Bucks County, even though the Marcellus Shale is located in places 200 miles away.

Second, Pennsylvania imposes taxes on businesses that states with a severance tax, such as Texas and Oklahoma, do not impose. Pennsylvania not only has the highest corporate net-income-tax rate in the nation, but it also has a capital stock and franchise tax. No other state has both of these taxes.

Considering those taxes and tax rates, why would Pennsylvania impose another new tax on this growing sector of our economy?

Finally, Economics 101 teaches us that taxes deter new businesses and job growth.

When natural gas was discovered in Alberta, many companies flocked there. The province's government assumed that it now had a new, captive audience, and it imposed a severance tax on the natural gas companies.

What happened? The companies put their development in Alberta on hold. They moved to another shale-exploration area with a competitive market: Pennsylvania. (Alberta subsequently removed its tax in hopes of luring business back.)

There is no debate about whether we should tax the natural gas industry. We already do. There is no mystery about what happens if taxes are too high. Businesses leave. They will go to Alberta, Oklahoma, Colorado, or even Poland, all places with natural gas deposits that are accessible thanks to 21st-century technology.

Pennsylvania stands ready to create hundreds of thousands of jobs, receive billions of dollars in tax revenue, offer businesses and families low-cost energy, and improve air quality. These are opportunities that state leaders plan to foster, not crush.


Chat live with Jim Cawley

on Monday

at 1 p.m. at .


Contact Jim Cawley via www.ltgovernor.state.pa.us

or JimCawley@pa.gov.

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