Government_ch11_natural-gas-tax-issue

=**Pennsylvania Natural Gas Tax Issue**=

**Cost of drilling in PA vs. Texas:**
PA has the 2nd highest corporate tax in the U.S. (map below). This is important to understand when it comes to debating the severance or extraction tax on the natural gas industry. Pennsylvania is definitely getting money from the natural gas industry by way of its business tax. Other states that do have the severance or extraction tax have lower business tax rates than PA. However, supporters of an extraction tax say it's fair because other states have it too. Pennsylvanians may not be aware that PA has a higher business tax than the other states that have the extraction tax.

Pennsylvania does allow counties where wells are drilled to charge an impact fee. This impact fee has allowed the counties that have the gas wells to benefit rather than the state taking all of the impact fee money and using it in parts of the state where there is not any drilling. Supporters say an extraction tax will bring in more money that can be used in necessary places in the budget (rather than making cuts to various spending areas). Supporters will claim such a tax is fair since other states do it, but remember most supporters leave out the fact of PA's already high corporate tax rate.

What will the natural gas industry do if there is an added extraction tax? They would either pass along the cost to the consumer or move to a state (likely Ohio) with a lower corporate tax rate (but still drill in PA - pay the extraction tax, but pay a lower corporate rate in another state). Pennsylvanians not involved in the industry would likely not notice this change, but it would bring in less revenue in corporate income tax. Supporters of the extraction tax, however, would point to revenue coming in from such a tax and most Pennsylvanians would not make the connection of less revenue coming in from the corporate tax rate.

SO, basically an added extraction tax would cost jobs in the natural gas industry (jobs would go from PA to OH) but only those directly in the industry would notice this. Most Pennsylvanians wouldn't see this. Pennsylvanians would see money coming into the state in the form of extraction tax, but would not see the direct correlation in less revenue coming in from the gas industry in their corporate taxes. It's the classic "robbing Peter to pay Paul" analogy.

So a politician says "tax the gas industry - it's fair because they have the revenue coming in and other states do it" counting on Pennsylvanians not being aware of the whole issue and therefore supporting such a plan. Below is a comparison with Texas:

The number of drilling rigs in PA has expanded much faster than surrounding states. Putting on a severance/extraction tax could bring PA down if there is less incentive to drill.

**Facts about the PA gas industry and jobs**

 * From 2005 to 2012 this industry accounted for 90% of PA's job growth according to the Bureau of Labor Statistics.
 * Production in the early 2010s grew faster in PA than any other state according to the U.S. Energy Information Administration.
 * Natural gas industry has good paying jobs. See chart below
 * [[image:jobs.jpg]]
 * Competition with oil helps drive the price of a barrel of crude oil down, which we see at the pump.

**Other Charts:**
PA compared to West Virginia (who has a severance but much lower corporate tax rate):

Job growth from the natural gas industry compared to other businesses and compared overall with the U.S.

Why support a severance tax?
 * Environmentalist that does not favor fracking or drilling (or coal for that matter).
 * Progressive values - in favor of taxes on corporations.
 * Buy into the "fair share" argument

Possible movement by Governor Wolf on the state corporate tax rate: [|click here]

Go to YouTube - type Stossel and fracking. There are numerous clips with Stossel debating the fracking issue on a national scale. Watch these clips and write your reflections.

Back to the Ch. 11 PA links page