Monday, July 23, 2012

Fallacies in the conservative case against Kasich's shale plan

As you have seen on our very own pages, there is a difference of opinion among Ohio's conservatives regarding Governor Kasich's severance tax proposal. Below, we take issue with some of the main arguments against the proposal.

The current severance tax will already result in $433 million for the state to use to cut income taxes.

This is a claim made by the Ohio Liberty Coalition in their press release.
“What Governor Kasich is proposing is unnecessary and unwise. Under the current rules, the severance tax on oil and gas produced $11 million in state taxes in 2009, and by 2014 it is projected by the Ohio Chamber of Commerce to increase to $433 million per year. If the Governor wants to cut personal income taxes he can use that new money to do so. It is unnecessary to raise taxes when this industry is already on track to dramatically increase tax revenue. It is also unwise to throw roadblocks in front of an industry that is critical to the economic future of our state. Some companies are already leaving Ohio. That is not what we want.”
Wrong, wrong, wrong.

Before I address this one, I want to stress that we agree with the OLC on many many issues, and have much respect for the grassroots work that they do. However, they got this one just plain wrong. Here is the report that Tom Zanistowski is getting his information from.

He states that under current law, the current severance tax will collect $433 million per year by 2014. That isn't so. Check the table on page 65, which shows projections of income based on current law. The $433 million figure is an estimate of all state AND local taxes. The projection for the current severance tax, in the same table, is only $16 million in 2014, not $433 million.

In one fell swoop, the OLC's first and primary argument is proven false. It's an honest mistake, (one they have yet to correct, I might add.) However, if they misread this simple piece of data, my trust in their understanding of the issue is broken. Thus, their entire argument against the proposal lacks credibility.

This policy is not conservative. If you support it, you're a RINO.


The governor's proposal uses 100% of the funds from increased severance taxes to cut income taxes for every Ohio taxpayer. Since when is reducing income taxes and letting taxpayers keep more of their own money a RINO concept?

Would the same tea party supporters call Sarah Palin a RINO? If they don't want to be hyprocrites, they would. Because while governor of Alaska in 2007, Sarah Palin significantly raised taxes on oil production.
Palin, 44, proposed the tax increase Sept. 4, 2007, and called a special legislative session to pass it. At an Oct. 12 community meeting in Anchorage, the governor referred to oil as ``our very valuable non-renewable resource.''

``When we develop our natural resources, we will do so for the maximum benefit of Alaskans,'' she said then. Palin signed the tax increase Dec. 19.

This was a very large tax increase, resulting in billions of dollars in additional annual taxes on oil production. In addition, some of that money went to fund more government spending. Many die-hard Sarah Palin supporters have describe this as "standing up to the oil companies." Are those same supporters now calling John Kasich a RINO for proposing a small fraction of that increase where not one dime of that money is used for more government spending? It would appear so.

How about Rick Perry in the state of Texas? Nothing says "conservative" like Texas, right? The total tax burden on gas and oil production in Governor Kasich's proposal would still be much lower than that of Texas, according to a study performed by independent auditor Ernst & Young. In Texas, the total effective tax rate is 8.2% to 8.9%, depending on what is being produced. Under the Kasich plan, the total effective tax rate would be 5.5%, still lower than Rick Perry's Texas.

States with governors regarded as "staunch conservatives" like Perry and Palin have implemented much higher taxes on oil and gas production than what Kasich proposes. The "not conservative" charge holds no water.

This is a redistribution of wealth!

No it isn't.

This is not a policy that takes from the wealth of oil companies to redistribute to other people through government spending.

First off, it's not taking anything that belongs to the oil companies. The wealth is in Ohio's ground. This plan would take that wealth in the ground and use it to reduce taxes for Ohioans.

Second, I return to the Sarah Palin example. She is the undisputed hero of the Tea Party. Even though Alaska already had a budget surplus, Palin increased taxes on oil companies.
The state received $5.1 billion from oil companies in fiscal 2007, when it had a $1.2 billion surplus.

Each Alaska resident gets an annual rebate from state oil revenue, and this year Palin added $1,200 more to the $2,100 check each person received.
Well, by the same argument, isn't what Governor Palin did a "redistribution of wealth?" The same folks that hold Sarah Palin in the highest regard as an example of flawless conservatism, are criticizing Kasich for a policy that is similar, yet much less aggressive than hers. When was the last time you heard a Tea Partier call Sarah Palin a RINO?

Folks, Alaska and Texas are both states that have no income tax. Part of the reason for that is that they have a reasonable energy tax policy that allows their citizens to benefit from the resources they were blessed with beneath their feet. If you want to realize the long term goal of becoming a state like Texas that has no income tax and has an economy that is the envy of every other state, start by looking at what Texas does.

This plan strikes the right balance between being fair to the industry and being a benefit to the state's citizens. And since not a single dollar of the tax revenue would fund more state spending, but rather reduce the income tax in Ohio, thereby making Ohio more competitive, there isn't a serious reason that conservatives should oppose it.


  1. The people against this are starting to look more and more foolish.

  2. We can agree with Nick that our press release should have read:

    “Under the current rules, the oil and gas industry paid $16 million in state and local taxes in 2009, including severance taxes, and by 2014 it is projected by the Ohio Chamber of Commerce that the industry will pay $433 million per year. It is unnecessary to raise taxes when this industry is already on track to dramatically increase tax revenue.”

    We can also agree that the severance tax is only $16 million of the $433 million in taxes. However, we can not agree that this makes our entire argument invalid.

    The fact is that the oil and gas industry will increase its total tax payments by $417 million PER YEAR in just five years! Why is that not enough? Why do you need to raise their taxes when they are already going to significantly increase their tax contribution? That is punishing success and that is wrong and is counter productive.

    And this is redistribution of wealth. Our Governor is playing the role of “Robin Hood” who is taking money from the rich and giving it to the poor - but not keeping anything for himself. We don’t want to hear that this is not stealing money. It sure is stealing to the rich guy who is out the money! Taking money from the oil and gas industry and giving it to the general public and then saying it is not a tax increase is the same thing. It's a tax increase to the people paying the tax increase!

    We also take exception to the idea that TEA Party members who supported Sarah Palin or Rick Perry also support their taxation of the oil and gas industry. We have significant problems with Sarah Palin’s view of who owns the resources in the ground. She would agree with your statement that “The wealth is in Ohio's ground. This plan would take that wealth in the ground and use it to reduce taxes for Ohioans.”

    The wealth is in Ohio’s ground??? Oh really? Our reading of the Constitution and US and Ohio Law says that the wealth in the ground belongs to INDIVIDUAL Ohio citizens - not the State. Some of these people have been paying property taxes and farming that land for 100 years and they own it all - including the mineral rights. Neither the state nor Ohio Citizens own those rights except for those on state owned property - as it should be. You have no right to “take that wealth in the ground and use it to reduce taxes for Ohioans.” It does not belong to you.

    This is where “conservatives” like Sarah Palin and Rick Perry and apparently our Governor go off the conservative ranch into a socialist, government controlled view of America that we usually see from our comrades on the left. What makes America EXCEPTIONAL is individual freedom and liberty, individual PROPERTY RIGHTS, the rule of law, and Freedom of Religion. The role of government is to protect and defend the constitution not to shred it whenever it needs to score some political points and win votes.

    The way to make Ohio “more competitive” is not to raise taxes on the oil and gas industry but to keep our taxes low so that they invest in Ohio and not other states or places. The way to cut taxes is to reduce government spending and return the cuts to the people. Not to take money from one industry and give it to citizens and then claim you cut taxes. This plan is as we said in our original release “un-wise and un-necessary.”

    Tom Zawistowski
    Ohio Liberty Coalition

    1. Boy, the OLC is losing all kinds of cred. Palin,Perry and Kasich have socialist tendencies?! I am a tea partier, but this is ridiculous. Mr. Zawistowski, you are barely treading water and do not speak for me.

    2. So, the TEA Party also thinks the Wall Street Journal believes in socialism. I have no idea why someone would want to run for office when you have to appease this kind of crazy. Does closing a tax loophole and returning it to taxpayers represent Robin Hood? Nutty.

      Tom, if you really think being to the right of Rick Perry is where the GOP needs to be, any reform will be stunted. I stand with Palin.

    3. It's not closing a loophole. It's raising a rate to lower another. Closing a loophole would be like getting rid of a tax expenditure.

    4. Hmmm.... Strange that Matt Mayer and his cohort Chris Littleton who is connected to the Ohio Liberty Council are working hand in hand with Plunderdumb and Redfern against the Governor. There's got to be something to that.

  3. Thanks for your reply, and the correction, Tom.

    This is just an issue where we disagree. There is no Robin Hood scenario here. There is no stealing from the "rich". And the benefits certainly aren't going to the "poor". That's a misrepresentation of what severance taxes are.

    This plan will benefit our income tax structure and economy like it has in other states. And the drillers aren't going anywhere. The risk of losing the investment is virtually nil. An opportunity to capitalize on the resources our state has, for the benefit of almost everybody, is an easy choice to make.

  4. Nick, are you saying the companies that pay this tax aren't wealthy compared to the people who are going to get this pittance of an income tax. You say it's not Robin Hood, and yet the entire reason Kasich is able to lower the income tax is by raising the tax on a smaller, wealthier tax base.

    I'm sorry, but you're more intellectually honest for arguing in favor of progressive taxation over regressive ones than to argue that this isn't Robin Hood-style economics.

    Of course, to me, you lost the debate when you hinged your entire argument that if the critics were correct, it would be that Sarah Palin is a hypocrite since she is.


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