Twice before, Ohio House Republicans have rejected John Kasichís proposals to increase severance taxes, requiring oil and gas drillers to compensate the state fairly for extracting one-time resources. The governor tried again in recent weeks, including a modest increase in his mid-biennium review.
Whatís likely to emerge early next month is a scaled-back version of the governorís plan, one more to the liking of the oil and gas industry and its powerful lobbyists. While the governor would like a new 2.75 percent tax on gross receipts from horizontally drilled, hydraulically fractured wells, a bill introduced by state Rep. Matt Huffman, a Lima Republican, would impose a lower rate, 2.25 percent, on net proceeds.
Last week, a study by the consulting firm Ernst & Young made plain that industry warnings about higher severance taxes causing drillers to abandon the stateís lucrative Utica Shale areas are vastly overblown. The report was prepared for the Ohio Business Roundtable, which backs the governorís plan. Ernst & Young analyzed the effective state and local tax rates in states that are in direct competition with Ohio, including Arkansas, Michigan, North Dakota, Oklahoma, Pennsylvania, Texas and West Virginia.
With the governorís severance tax, Ohioís effective tax rate would rise from 1.5 percent of sales to 3.1 percent, but the state still would have the lowest rate among the eight states. More, the higher Ohio rate would be a whopping 63 percent below the average for the seven other states.
Unfortunately, both the governor and House Republicans would use most of the money (estimated at between $231 million and $874 million a biennium) for even deeper cuts to personal income tax rates, despite much evidence that such reductions do little to spur growth while largely benefiting the wealthier taxpayers. What the governorís approach definitely would not do is dampen the stateís drilling prospects.