Thursday, April 12, 2012

Kasich's oil tax plan would modernize our outdated system and stimulate the economy

We've seen a lot of good news for Ohio's economy since Governor Kasich took office, but there's still a long way to go to get us out of the ditch we were left in. Our state still has high taxes compared to the rest of the nation. Our combined state and local tax burden is near the top third. Kasich has a plan to reduce that burden.

That plan is to raise the taxes charged to out of state energy companies who extract oil, natural gas and other valuable liquids from the earth, and to take those revenues and give them directly back to Ohio taxpayers and small businesses.

Now, I know what you're thinking. "Raising taxes? What's going on here? Why would you support that?"

For one thing, almost all states that have a significant oil industry have these taxes, called "severance taxes." They are revenues to compensate the state for resources that will never be replaced. Ohio has never really been an oil producing state, so not a lot of attention has ever been paid to our severance tax rates. Now that we are about to enter a drilling boom, it's necessary to revisit our extremely outdated system.

For every barrel of oil, currently worth well over $100, taken out of Ohio, oil companies pay just 20 cents. Other valuable liquids aren't taxed at all. The governors plan would phase in an increase of those severance taxes. But instead of using the revenue to fund bigger government, 100% of that money would go directly to income tax reductions for every Ohio taxpayer.

Most other states would still have higher severance taxes than the new proposed rates under Kasich's plan, and large producers would be allowed to break even first. They would get up to two-years at the initial low 1.5 percent rate to break even before the standard 4 percent rate kicks in.

The Columbus Chamber of Commerce and the Columbus Partnership have urged the Ohio Legislature to support the plan and the Columbus Dispatch said that "Gov. John Kasich’s proposal for an update of state severance taxes, to pay for an income-tax rate reduction, is an eminently sensible way to make Ohio’s expected shale-gas boom benefit the entire state economy." In a separate editorial, the Dispatch also said that "as Ohio’s shale boom gains steam, lawmakers should put Kasich’s plan in place so the entire state can benefit."

Democrats, of course, are always giddy to raise taxes, especially on eeeevil oil companies. But they don't want to give the money back to the people of Ohio, they want to use it to fund more government spending. Chris Finney, from the Coalition Opposed to Additional Spending and Taxes, explains the folly of their argument.
Instead of tax cuts to spur growth, some on the other side want revenues directed toward more government spending at the state and local level. More spending? According to the U.S. Census, from 1999-2009, taxes for more local-government spending increased by 41.6 percent, from $14.1 billion to $20 billion. Meanwhile, inflation increased by only 29 percent over the same period and Ohio’s population remained mostly stagnant. The reflex by so many on the left to call for more spending on government programs shows a keen misunderstanding of what plagues our system of government.

In Cincinnati, City Council is wasting $4.4 million on a glass top for City Hall's Courtyard, spent more than $40 million to develop a subway station on the Riverfront that has sat unused for 8 years and is embarking on a $125 million streetcar project we simply cannot afford. The notion that Cincinnati needs more tax money is amusing, but not serious fiscal commentary.
Even though Grover Norquist has said that support for this plan would not violate the ATR pledge, many Republican legislators in the Ohio House still need some convincing. Contact yours state rep and ask them to support the governor's plan.

This is a reasonable plan. Ohio taxpayers should also benefit from the coming shale boom, not just out of state oil companies.

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