A New Tax You Should Rally For

Nor' east Thinkin'

Why on earth should a new tax be advocated in New York and Pennsylvania

Published on: April 16, 2010

Yesterday was "Tax Day" or what Tea Partiers might call "Pound of Flesh Recognition Day". Please note: I refer to it a recognition day, rather than a celebration day.

Of course, if you made enough money last year to pay taxes, then maybe you have cause to celebrate. But that's not what this blog's about.

I have the audacity to favor a new tax or fee for both New York State and Pennsylvania. Now, before your temper blows, understand that it would be assessed only on natural gas extractors setting up on and around the Marcellus shale formation. Governors Paterson and Rendell have proposed it.

While I rarely agree with Jan Jarrett, president of PennFuture, she's right that legislation must be enacted to collect an impact fee, a severance tax or an extraction fee. And, it must be done ASAP. Every day of legislative dawdling wastes thousands of dollars that counties and local governments will sorely need.

Of the top 15 natural gas producing states, Jarrett points out " Pennsylvania is the only one that doesn't have a fee to compensate for the loss of natural resources and help fix the scars of extraction. An impact fee (5% on the value of extracted gas plus 4.7 cents per million cubic feet) identical to the one in place in West Virginia since 1987 would raise more than $100 million a year initially, rising to more than $630 million annually."

I can't vouch for her numbers, which some argue are "gaseous". Rendell's numbers are $178 million and $500 million by 2014-15. But doing nothing is vaporous, while the costs of repairing roads and fixing environmental damage will be monstrous.

Myths abound

Commonwealth Foundation reports suggest that energy companies won't play in Pennsylvania if a fee is enacted. That's a myth. The major players are already here, investing billions in lease contracts, wells, pipeline construction equipment and more. Grouped lease contracts worth many millions are bought and sold almost like cattle going through an auction barn.

Naturally, these players are the biggest opponents of an extraction tax, claiming that it would destroy an "infant" industry. The likes of Chesapeake Energy, India-based Reliance Industries, CONSOL Energy and ExxonMobil are no infants. They're global players. Even with an impact fee, Appalachian natural gas will still be a bonanza for them.

Multi-national energy companies rushing to drill here aren't dumb. They're adept in avoiding corporate net income tax. That's why many have LLC (limited liability corporation) tacked onto their names or incorporating under the Delaware (tax avoidance) loophole. In fact, 71% of companies doing business in Pennsylvania paid zero corporate net income tax last year, argues Jarrett. And 79% of the remaining companies paid less than $10,000 each. That's why a severance tax is a "no-brainer".

Where'll the money go

My biggest "beef" with Rendell's proposal is that 90% of the severance tax revenues would be pumped into the state general fund - not for local environmental or infrastructure improvements. Filling a budget deficit hole isn't the highest and best use of these dollars.

Road damage, pipeline construction, environmental damage and water contamination must be dealt with locally. County and local governments will need a bigger piece of the pie to offset these costs.

Another portion should also be invested in watershed restoration and protection, habitat conservation and conservation of open space and farmland. This can be accomplished by directing a portion of the tax to the Environmental Stewardship Fund (Growing Greener).

Jarrett wants a portion directed to watershed public access purposes. But that's diluting funding needs from far higher priorities.

State legislators must not dawdle on this issue. Once gas extraction begins, close to 60% of total gas is produced in the first two years. So push your legislators to push for it.

Passing an extraction tax to help pay for the damage left behind will go a long way to making our tax system fairer. That's what most taxpayers want more than anything.

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