Bill Batchelder broke ranks last week with John Kasich, the Ohio House speaker abruptly departing from earlier support of the governor’s proposal to increase the state’s severance taxes on high-volume oil and gas wells. Batchelder spoke Thursday at a meeting of the Ohio Oil and Gas Association. He bluntly called the severance tax plan “nonsense” and “a big mistake.”
The Medina Republican’s mistaken view is that an increase in taxes on the crude oil, natural gas and natural gas liquids pouring from the state’s booming high-volume wells would damage the industry’s growth.
If anything is nonsense, it’s that an industry that has spent billions (and kept right on investing after the governor first proposed increasing severance taxes last year) would back off from lucrative finds in the state’s deep shale formations. An independent analysis by Ernst & Young last year showed that even with the increases proposed by Kasich, Ohio’s rates still would rank in last place among eight similar producing states, including Michigan, Pennsylvania and West Virginia.
Hydraulic fracturing has made the boom possible, the technique injecting huge volumes of water, mixed with sand and chemicals, to break open rock formations. The governor rightly argues that the one-time source of wealth should be distributed broadly among all Ohioans. His plan would raise tax rates to 1 percent on natural gas and to 4 percent for oil and natural gas liquids.
As things stand, the governor and the speaker remain committed to the questionable notion that lowering individual income tax rates another 20 percent is essential to stimulating job growth. The the new severance tax is designed to cover part of the resulting revenue hole.
The Coshocton Tribune reported that Batchelder told the oil and gas drillers a severance tax isn’t the “only thing that can lead to an income tax cut.” What then will substitute? Opposition also is building to the governor’s proposal for a dramatic expansion of the state sales tax.
Further cuts to the income tax largely would benefit wealthier households, neither sparking a sharp increase in demand nor stimulating much job creation. That said, a modest increase in severance taxes would be neither burdensome nor unfair to a newly resurgent oil and gas industry.
Given the potential environmental harm from hydraulic fracturing, the money from increased severance taxes would be better spent beefing up state oversight of oil and gas drilling. Ohio has updated its regulations. Necessary now is an adequate number of inspectors to make sure all precautions against environmental damage are taken.