Democratic candidate for Governor Allyson Schwartz rolled out her first policy proposal of the 2014 campaign this afternoon: a 5% severance tax on natural gas production on top of the puny impact fee the Republicans passed in Act 13. Crucially, this money would go to the general fund to pay for public education, school property tax relief, transportation infrastructure, clean energy incentives and other general fund budget items.
The Schwartz campaign projects the tax will raise over $1 billion a year by FY 2016-17, and over $2 billion a year by FY 2022-23. Here’s the breakdown:
As Schwartz notes, a 5% severance tax would be in the middle of the pack for gas-drilling states. It is less than the severance tax rates in Texas (7.5%) and Oklahoma (7%), and the same as West Virginia’s rate.
So this would not in any way push drillers out of Pennsylvania. It would simply collect the same rate on gas production as many other states – perfectly reasonable for “the Saudi Arabia of natural gas” to use Tom Corbett’s phrase.
On the conference call announcing the position, Schwartz admirably rejected savvy political reporters’ insistence that the severance tax won’t pass, or that Republicans will get any political traction by pointing at the plan to characterize her as a “tax and spend liberal.”
She replied that she would contrast her position with Senator Scarnati and the Republicans’ position that we should raise taxes on middle class Pennsylvanians, rather than gas companies, to pay for our state services. Congresswoman Schwartz welcomed a debate between those who want to protect energy companies’ taxes from going up, and those who want to protect middle class families from tax increases to pay for education and other priorities.
I’ll admit to pounding the desk when I heard that. As I’ve been saying for a long time, this is the strongest argument for a severance tax. We should get as much money for the general fund as we possibly can from natural gas taxes and other natural resources before we resort to taxing Pennsylvanians’ income, investments and sales. All those things are beneficial for the economy, but when we tax them, there’s some deadweight loss. People will work a bit less, buy a bit less, and invest a bit less.
Taxing natural resources like urban land or extractive energy isn’t like that. The supply is fixed. Gas drillers have to be in Pennsylvania to get Pennsylvania’s shale gas. They’ll pay whatever we charge them, and a 5% middle-of-the-pack severance tax such as Allyson Schwartz is proposing certainly isn’t nearly enough to drive drilling activity out of state.
I’m very impressed with this. I assumed we were going to get a pretty bland policy agenda from a Schwartz campaign looking to keep it safe and merely pass the not-Corbett test of acceptability. Here’s hoping this is a preview of an aggressive issues-based campaign for change in Pennsylvania state government.