Lowman S. Henry: A Taxing Tale

By Lowman S. Henry
Guest Colimnist 

President Obama's claim that "If you like your health care plan you can keep your health care plan" was dubbed by pundits as the 2013 lie of the year. Fast forward to this year's gubernatorial campaign and two lies are competing for top honors.  Take your choice between: Governor Tom Corbett has slashed spending on public education; and Marcellus Shale gas drillers, unlike other states, are not paying high enough taxes.

Pollsters for the four remaining Democratic candidates for governor seem to have all discovered that education funding has surpassed unemployment and the melting polar ice caps as the main issue concerning likely voters in the upcoming primary.  Thus a happy convergence of the two lies has occurred.  The candidates can promise voters their cake - more education spending - and they can eat it too because they will tax the robber baron gas drillers to pay for it.

Setting aside the fact more state dollars are being spent on public education than at any time in the history of the commonwealth, let's focus on whether or not companies drilling in Pennsylvania's Marcellus Shale reserve are paying their fair share.  One candidate claims on his website that we are giving ". . . away our state's valuable resources without generating revenue for critical investments like schools . . . "  His television ads point out that gas drillers in Penn's Woods do not pay a severance tax as do companies operating in every other state in the union.

That is a true, but misleading statement.  Pennsylvania does not levy a severance tax, which is a tax applied on gas as it leaves the well, but the commonwealth does charge gas companies - as it does all other businesses - both a Corporate Net Income Tax and a Capital Stock & Franchise Tax.  We are the only state in the nation that levies both of those taxes.  That alone would place Marcellus shale drillers on an equal footing with the 49 other states.

But, it doesn't stop there.  Act 13 of 2012 imposed an impact fee on natural gas wells in Penn's Woods.  It is called a fee because Republicans supporting the measure did not want to be accused of raising taxes.  A rose by any other name, however, is still a rose.  The dictionary defines the word tax as "a sum of money demanded by a government for its support, or for specific facilities or services." Thus, the Marcellus Shale impact fee is, by definition, a tax.

The impact tax is levied based upon the price of natural gas traded on the market and on the age of the wells.  Thus the amount of revenue generated each year fluctuates depending on market performance and number of wells drilled.  According to the Allegheny Institute for Public Policy in Pittsburgh, the impact tax generated $204.2 million in revenue in 2011 and $202.5 million in revenue in 2012.  Less was generated in 2012 because the market price of the gas had decreased.

So, to put this into perspective, an industry that supposedly is not paying its fair share over the past two years paid every tax every other business in the state paid plus an additional $406.2 million.  What sort of outrage would there be if, for example, we asked farmers to pay an impact tax? They use natural resources - soil and water - to produce their product.  Or, perhaps to make it fair we should enact a "success tax" - in addition to Corporate Net and Capital Stock & Franchise taxes - on any business in Pennsylvania that expands rapidly and reaps higher profits?

The current political debate focused on adding another layer of tax on Marcellus Shale drillers implies, and in some cases outright states, that the gas companies are taking a natural resources and we are left with no benefit.  But the Allegheny Institute's analysis of where dollars from the impact tax have gone shows that a wide range of state agencies, county and local governments have received revenue from the tax.  These funds have gone to repair and replace local bridges, improve water and sewer projects, clean up acid mine drainage, pay for green space initiatives and watershed projects. Money has been set aside in the Environmental Stewardship Fund to pay for any future problems which may arise, and into community and economic development.  Counties - all 67 of them - have shared in over $21 million in revenue.

As in most political campaigns truth is the first casualty.  Candidates can certainly propose higher taxes, but they should at least not mislead voters. Instead they should tell the whole story and not just those parts of it that fit their campaign narrative.

Lowman S. Henry is Chairman & CEO of the Lincoln Institute of Public Opinion Research and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org.