Pennsylvania Proposes Biggest Energy Tax Hike in the Nation

Published June 13, 2016

A proposal by Gov. Tom Wolf (D) to begin taxing natural gas production in Pennsylvania would make the state’s energy tax burden the largest in the nation, according to a state financial expert’s testimony given to state lawmakers.

In May, Matthew Knittel, director of the Pennsylvania Independent Fiscal Office (IFO), testified before Pennsylvania state legislators, explaining the nonpartisan government agency’s economic analysis of Wolf’s proposal, which is included in a recent budget bill. If passed, the legislation would replace the state’s current impact fee with a 5 percent severance tax added to the value of gas extracted and would add 4.7 cents to the cost of each 1,000 cubic feet of gas extracted.

According to IFO’s calculations, if Wolf’s proposal is approved by lawmakers, the state would effectively be charging a severance tax rate of 8.5 percent, making Pennsylvania the most expensive state from which to extract natural gas in the nation.

No ‘Straight-Up Severance Tax’

Isaac Orr, a research fellow with The Heartland Institute, which publishes Environment & Climate News[JH1] , says Pennsylvania currently enjoys an advantage over other mineral-producing states.

“Pennsylvania is actually the only major oil-producing state without a straight-up severance tax,” Orr said. “They have what’s known as an impact fee, so they assess a fee for every well drilled. That’s usually a flat fee, so they’re different in that regard. The impact fee concentrates the revenue, which goes to county governments rather than to the state’s coffers.”

Orr says Wolf’s proposal could drive job creation to other states in the region, such as Ohio.

“If all things are equal as far as the cost of drilling, companies might decide to concentrate on drilling in Ohio instead, if the severance tax is higher in Pennsylvania,” Orr said.

‘Highest’ Tax in the Country

Bob Dick, a policy analyst with the Commonwealth Foundation, says the plan would be “devastating.”

“Gov. Wolf’s proposal, if it were to be enacted by the legislature, would be the highest effective severance tax in the country,” Dick said. “That would be devastating to the natural gas industry and all the people who depend on it to put food on the table.”

Dick says energy companies will leave Pennsylvania for friendlier states with natural resources, or cut back on production.

“The companies drilling in Pennsylvania could pick up and move to other places that have a lower tax burden and encourage drilling,” Dick said, “If it’s not profitable to do it in Pennsylvania, then they’re not going to do it, it’s that simple.

Impact on Families

Dick says filling the state government’s coffers using energy taxes will come at the expense of everyday people and their families.

“We’re not just talking about wealthy natural gas drillers; we’re talking about people who have families to sustain with their jobs,” Dick said. “They’re going to lose those jobs if the governor’s tax increase becomes law.”

Jesse Hathaway ([email protected]) is managing editor of Budget & Tax News.