As a native ofPennsylvania, it pains me to single out my home state for pushing unwise taxand spending policies. Unfortunately, the politicians who run the state andlocal governments leave me with little choice but to speak out.
Earlier thisweek, the Pennsylvania House of Representatives passeda bill that would impose a severance tax onnatural gas at a rate of 39 cents per 1,000 cubic feet of gas, which would be the nation’s highest such tax. We here at NTU sent a letter to the House in opposition to the tax. The bill passedon Wednesday by a vote of 104-94. But the fate of thistax is uncertain because the State Senate opposes such a high rate. SenatePresident Pro Tempore Joe Scarnati has told reporters that his chamber isseriously looking at Arkansas’ approach. In Arkansas, natural gas extraction istaxed at a rate of 1.5 percent for three years to allow energy companies torecoup investments, and then it increases to five percent.
Currently,Pennsylvania levies no such tax. Recent advances in natural gas exploration technologyhave opened up the Marcellus Shale, a vast natural gas field buried beneathPennsylvania and other states. Energy companies are lining up to take advantageof this newly accessible resource. Marcellus projects have already created thousandsof jobs and yielded more than $1 billion in tax revenues. A study by Penn StateUniversity estimates that continued development would provide 111,000 new jobsand $987 million in revenues by 2011. Moreover, these new jobs cut across the energy,manufacturing, service, and retail sectors.
But that kind of economic growth is not enough for Governor Ed Rendelland the other tax and spenders in Harrisburg, who want to a bigger cut from thewealth to pay for their pet projects and programs. Here is why, according tothe Pittsburg Tribune-Review:
“Gas production from a typicalMarcellus shale well drops dramatically over the first year, starting out athigher than 3,500 mcf, or thousand cubic feet, per day initially, and droppingover the first 12 to 15 months to less than 1,000 mcf per day, according to aRange Resources presentation on its website.”
“At that rate, with the House-approved tax, a typicalwell would start out generating $1,363 per day and then drop to $390 per dayafter 12 to 15 months. With the Senate proposal for a 1.5 percent tax for thefirst three years, the well would raise about $210 daily, based on today's gasprices.”
The problem is that the high tax the House proposes may stifle naturalgas development and economic growth. According to the Commonwealth Foundation,which has created a website devoted to energy issues here, stateswith high severance taxes, such as West Virginia, have not experienced as muchgrowth in the energy sector, including job creation, as states with lower or noseverance taxes. By levying the nation’s highest severance tax on natural gas,Pennsylvania’s politicians could actually impede or ruin the Commonwealth’sopportunity to cash in on this amazing find. Hopefully, Pennsylvania’s StateSenate will stand firm against this proposal.