Ron Amstutz promises a “deep-dive analysis” of the governor’s budget plan, the chairman of the Ohio House Finance and Appropriations Committee ready to examine how all the parts fit together. In recent comments, Amstutz has taken aim at proposed increases in the state’s severance taxes, an important source of new revenue John Kasich assumes will help offset another reduction in state income tax rates.
What Amstutz and his colleagues must remember is that others have plumbed these waters before. There are questions that need to be answered, especially whether an income tax cut is the best way to achieve improved and sustained economic growth. What is not in doubt is that the state’s current severance taxes are comparatively low, and oil and gas drillers are ready to make a lot of money from one-time resources.
Kasich earlier sought an increase in severance taxes. That led the Ohio Business Roundtable to commission an analysis by Ernst & Young. The firm looked at the impact of state and local taxes on oil and gas drilling in eight states, Ohio, Arkansas, Michigan, North Dakota, Oklahoma, Pennsylvania, Texas and West Virginia. Calculations were done on two types of wells, those producing natural gas and natural gas liquids and those producing natural gas and oil. In both, Ohio’s current overall tax burden ranked dead last.
Ohio’s overall effective tax rate (total taxes divided by sales) rates 80 percent below the average for the seven other states for wells producing natural gas and natural gas liquids and 65 percent below the average for the other states for wells producing natural gas and oil.
What would be result if lawmakers approve the governor’s proposed increase in severance taxes — to 1 percent of the price of natural gas per quarter and 4 percent for oil and natural gas liquids? Ernst & Young found the state’s overall tax burden still would be the lowest among the eight states, reflecting the modest increases and recent tax changes lowering the tax burden on business.
The firm did warn of volatile prices making it difficult to project revenue from severance taxes, complicating the use of the taxes to help offset an income tax cut. Even so, its analysis gives no credence to the notion oil and gas drillers would be put at a competitive disadvantage in Ohio, dampening the industry’s rapid growth.