Saturday, June 23, 2012

Kasich's severance tax increase a bad idea

I'm not sure what's up with Gov. John Kasich, but he wants to increase taxes on one segment of our state in order to provide a tax cut to other segments.

In case you're not clear, this is exactly the same line of reasoning Pres. Barack Obama has when he says he wants to 'tax the rich' to provide funds for various government give-aways.

Kasich believes that an increase in taxes paid by oil and gas drillers in the state would be enough income to cover a reduction in taxes paid by individuals. Many individuals, not versed in Economics 101, hear 'tax cut' for themselves and are ready to jump all over the provision.

But if oil and gas drillers are taxed more, they'll just add the extra taxes to the cost of their product, driving up what individuals will pay. Which means that tax cut we'd get will go right back out to pay for the increased costs of the gas and oil products.

Not smart ... but appealing to people who don't think.

Jason Hart at recently interviewed Jerry James, president of Marietta-based Artex Oil Company, about the proposal. As Hart writes, "While it may go without saying that James opposes higher taxes on oil and gas drilling, the perspective of Ohio employers should not be discounted simply because they have a financial interest at stake."

You can view the interview here.

Hart writes (emphasis added):

According to James — who currently serves as president of the Ohio Oil and Gas Association — leaving the severance tax unchanged would not only benefit Ohio landowners, energy companies, and blue-collar workers, but would drive overall economic growth in eastern Ohio. James predicts this would result in greater tax revenues under the more competitive current rate.

As a supplement to his comments in the above interview, James provided a chart showing a 50% drop in drilling activity in Arkansas after that state passed a comparable tax increase early in a similar energy boom. The Arkansas example was also cited by industry spokesman Terry Fleming of the Ohio Petroleum Council when Kasich’s proposal was first being discussed this spring.

James noted that in addition to the severance tax, energy companies in Ohio pay income tax, sales tax, an “ad valorem” tax on the value of underground minerals, and the state commercial activity tax (CAT). He disputed drilling cost and output estimates from the governor’s office, pointing to the oil & gas industry’s narrow profit margins.

Kasich’s proposal, which remains delayed in the General Assembly, has been endorsed by the Cincinnati Chamber of Commerce and the Columbus Chamber of Commerce on the premise that increased energy production from the Utica Shale in eastern Ohio should be leveraged for lower taxes statewide.

The combined severance tax hike/income tax rebate plan is opposed by the National Taxpayers Union, although it has been deemed compliant with the Americans for Tax Reform pledge.

The last thing Ohio needs is to duplicate Pres. Obama's mantra and politics of division by raising taxes on one industry in order to provide tax relief to others.

It's robbing Peter to pay Paul, which certainly makes it popular with Paul.

But it's bad policy and will hurt all of us in the long run.


Nick (aka Bytor) said...

This is a rare occurance where I disagree with you, Maggie.

I guess it's understandable that conservatives would be split on this proposal. However, is it really accurate or fair to compare Kasich to Barack Obama?

Obama's "tax the rich" schemes are to bring in more money to the government, because he believes that government has a duty to redistribute wealth to those who choose not to earn for themselves.

This proposal would not go to increased government spending. The money would go directly back to Ohio taxpayers, the ones who are earning a living and paying Ohio income tax. Because, of course, as conservatives, we believe that citizens know how to spend their own money better than the government. Kasich believes that about Ohio's taxpayers. His goal isn't to "redistribute" wealth, but to allow all Ohio taxpayers to benefit from the resources that would be extracted from our state.

The difference between Kasich and Obama couldn't be more stark. Kasich's entire career has been one that is business friendly. Painting him as the same as Obama over this one issue isn't right.

Have a great weekend!

Maggie Thurber said...

Nick - Of course, we can disagree on this point. I certainly don't agree with anybody 100% of the time, but I welcome the discussion. :)

My comparison was not Kasich to Obama, as the two are clearly very different. The comparison was clearly of Kasich's policy/tax proposal to Obama's policy/tax proposal.

Obama wants to tax the rich - have government collect the money - and then distribute as he sees fit to favored companies or individuals via various social welfare programs.

Kasich's proposal is to tax a particular industry - have government collect the money - and then distribute it to individuals via an income tax rebate/offset.

The two approaches are the same and Kasich wanting to put the taxed money into a separate fund before re-distributing it out doesn't change the basic premise that he's proposing to tax some in order to give to others.

But you've raised a very interesting point when you say that Kasich's plan would "allow all Ohio taxpayers to benefit from the resources that would be extracted from our state."

If all Ohioans own all the resources of the state, is there anything left to the concept of private property?

That would be a very dangerous precedent to establish and you really don't want to go down that road.

Nick (aka Bytor) said...

I disagree with the term "redistribute" being used in conjunction with the severance tax proposal. In Obama's case it is appropriate because the funds would go to increased government spending. Using the funds to reduce the tax burden for everyone who pays taxes is completely different. The money goes right back into the private sector.

Lower overall income taxes will make Ohio more competitive. Our severance taxes are way out of whack compared to other states, and would still be lower than most. They're still going to drill. Its money in the ground. Enacting such a policy that lowers income taxes is a win-win for the state economy. Heck, even Grover Norquist gives it the thumbs up.

Thanks for discussing!

Maggie Thurber said...

Nick - you should know better than to try and spin things with me. Norquist didn't give the plan a thumbs up - it is only according to Office of Budget and Management Director Tim Keen who said he contacted ATR and was told the severance tax doesn't violate their no tax increase pledge.

That's a far cry from giving the tax a thumb's up.

Additionally, you can dispute the term 'redistribute' on the basis of no middle man (government), but that doesn't change the fact that redistribution is what this is.

What else do you call taxing one group (drillers) in order to give the funds to another group (individual taxpayers)? You seem to think that because government isn't keeping the money to spend on other programs, that somehow negates the redistribution.

But by any name and regardless of how you try to spin it, redistribution of wealth away from one and toward another is EXACTLY what this is.

And it's contrary to basic core conservative principles - no matter how much people may like it.

Maggie Thurber said...

Additionally, the National Taxpayers Union called the severance tax plan a “damaging” and “punitive” energy tax hike.

Clearly not a conservative thing to propose, regardless of how the increased taxes will be spent.

Nick (aka Bytor) said...

I still see the proposal as modernizing our energy policy. Not counting coal, we've never been a large energy producer, so our tax policy didnt matter much.

Now that we are going to be producing a lot of gas and oil, it makes sense to take advantage of our resources and lower our tax burden.

It will only help our economy, not hurt it.

Regarding the ATR pledge, you either violate the pledge, or you don't. Thumbs up or thumbs down.

(I also didn't claim that the gas in the ground "belonged to all of us". I said it could benefit all of us taxpayers. Big difference! Of course, the land owners will benefit personally as well.)

I guess we will see what happens in the legislature. But folks who are out there questioning Kasich's conservatism and saying he is the same as Obama need to think about what that really means.

Maggie Thurber said...

We certainly disagree on this, that's for sure...but I take exception to your interpretation that a non-violation of the ATR pledge is the same thing as Grover Norquist 'supporting' a tax increase.

But here we do agree - it is wrong to say that Kasich and Obama are the same. Having the same policy regarding a specific item (in this case the concept of taxing one group in order to give the takings to another) does not make the two the same - but the comparison of the policy and the approach is fair and accurate.

As for Kasich's conservativism, I'm a big one for consistency of principle. This severance tax policy is NOT consistent with conservative principles. Does that make Kasich a non-conservative? No - but it doesn't help his conservative reputation nor the conservative 'brand.'

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