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Lincoln Institute


Taxing Natural Gas Will Deflate PA's Economy

by Lowman S. Henry,
CEO, Lincoln Institute of Public Opinion Research
 

A few weeks ago Pennsylvania state senators just voted to hike taxes on natural gas. Their budget proposal, which passed 26-24, would slap a 5.7% tax on the fuel Pennsylvanians use to cook and heat their homes. It would also impose an estimated $600 million tax hike, increasing operating costs for job creators across the commonwealth, including a $100 million annual "severance tax" aimed directly at natural gas developers. That's on top of the "impact fees" these firms already pay the government for every new drilling project.

If the state House approves the plan, families in Penn’s Woods could struggle to pay their energy bills and thousands could lose their jobs. Longtime employers and new businesses would lose their ability to compete in the global economy and re-invest in the state. This is a no-brainer: Harrisburg shouldn't attempt to balance the state's $2.2 billion budget shortfall on the backs of working-class Pennsylvanians. Instead, lawmakers ought to trim bloated programs.

Pennsylvania doesn't have a revenue problem. It is already the 15th highest taxed state. Rather, state government has a spending problem. In the past five years, the state's general spending shot up 16%, while inflation increased just six percent. If spending had kept pace with inflation since 2012, the state wouldn't face its current budget shortfall. In fact, it would enjoy a small surplus.

It is clear that any tax increases would be harmful. But it'd be particularly foolish to damage the state's burgeoning natural gas industry.
Since 2008, Pennsylvania has benefited tremendously from responsible development of the Marcellus Shale, an underground rock formation that lies beneath much of the state. The shale contains a staggering amount of natural gas. But until the advent of advanced technology to reach it in the past decade, these gas deposits weren't accessible.

Thanks to advanced drilling technologies, developers can now recover the gas. They've done so at a steady pace-- and employed hundreds of thousands of Pennsylvanians in the process. In fact, the natural gas industry supported 322,600 jobs in the state and contributed $44.46 billion to the state’s economy in 2015, according to a recent study by PricewaterhouseCoopers LLP.

Between 2007 and 2012, the number of natural gas jobs in Pennsylvania rose nearly 300%, according to the Bureau of Labor Statistics, even as overall employment in the state remained essentially flat. Wages in the industry climbed 14.6%, compared to the overall average wage gain of 10.9%. The average salary for natural gas industry employees in 2016, not counting retail station jobs, was $101,181.00 which is nearly double the national average, according to the Bureau of Labor Statistics.

Gas drillers have delivered a windfall to the state treasury and local governments. Impact fees collected from energy developers have generated more than $1 billion for Pennsylvania since 2012. That money funds state fire commissioners, schools, and county and municipal governments.

Pittsburgh, which sits atop the Marcellus Shale, experienced faster economic growth than almost every other city in the nation between 2010 and 2015. Shale development accounted for most of those gains, according to a study by the Brookings Institution.

Imposing more taxes on gas drillers could force some of them to shut down or decide to develop gas fields in other, tax-friendly states. Pennsylvania businesses already pay a 9.9% income tax, one of the highest corporate tax rates in the nation. That's more than double the tax rate in energy-rich states like Colorado, North Dakota, and Ohio.

Instead of targeting developers, lawmakers in Pennsylvania and nationwide would be wise to assist them in any way possible. An analysis by Wood Mackenzie found that adopting pro-energy development policies -- opening new areas for responsible exploration, cutting back permitting delays, and streamlining regulations -- would help create a million new jobs nationwide by 2025, boost government revenue by $38 billion, and lower the average household's energy costs by almost $170 a year.

Pennsylvania is enjoying an energy transformation that delivers hefty paychecks and lower utility bills to millions of state residents. The last thing lawmakers should do is pass legislation forcing Pennsylvanian’s to earn less, pay more for goods and services and stifle this industry with hundreds of millions in new taxes.

(Lowman S. Henry is Chairman ~CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.


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