Unlike its foolish neighbors to the north in New York, Pennsylvania has been enjoying the fruits of the energy boom for several years now. Natural gas drilling in particular has been paying benefits to the government and the citizens, with thousands of new jobs and all of the secondary growth which is associated with higher employment levels. In November of last year, however, the citizens of the Keystone State decided to oust incumbent Republican Governor Tom Corbett and replace him with Democrat Tom Wolf. Would anyone care to hazard a guess as to what one of the new guy’s first plans was coming out of the gate?
Wolf revealed his proposed budget for the 2015-16 fiscal year, which includes a 5 percent tax on the value of gas at the wellhead plus 4.7 cents per thousand cubic feet of gas extracted to take effect in 2016. The governor projects it will rake in $155.7 million in a shortened 2016 fiscal year but will ramp up to $765.3 million in fiscal year 2016-17, the first full year of the tax, rising to $819 million, $869 million and $948 million in the following years.
I realize that a new Democrat governor talking about jacking up taxes is a dog bites man story, but this one could prove to be particularly disastrous for Pennsylvania citizens. First of all, as you’ll read in the linked article above, even Wolf’s own allies are saying that his numbers don’t add up. Even if nothing were to change (and it will) this scheme wouldn’t generate the revenue he’s projecting. But for more on precisely how much of an implosion this could cause, here’s Reid Porter of Energy Tomorrow.
Raising production taxes, as Gov. Wolf is proposing, threatens to undermine the transformative economic growth that energy development has brought to the commonwealth. Natural gas development supports hundreds of thousands of jobs, contributes $34.7 billion annually to the state economy and has boosted profits in more than 1,300 businesses of all sizes up and down the energy supply chain.
Piling on duplicative taxes puts all that at risk by making it more costly to do business in Pennsylvania. State leaders should reject any tax proposals that stifle energy production and the jobs that go with it.
We have been through this subject here at Hot Air enough times that most of you should know it by heart, but perhaps Governor Wolf could use a refresher course. As the United States has moved into the enviable position of being the leading global energy producer, increased supply has applied downward pressure on energy prices, providing the additional benefit of cheaper gas and heating oil for all of us. But it’s also driven profits down for energy producers to the point where they are scaling back production in some areas. The cost of natural gas – as well as the profits from same – is at historic lows right now, and Pennsylvania’s drillers have to look long and hard at the bottom line before drilling a new well.
Now here’s a question for the Governor… if the energy company is barely making a profit and you drive up their production costs by 5% at the wellhead, what do you think happens next? The answer is… nothing. As in they don’t drill a new well. Now, let’s move on to the bonus round, Governor. Feel free to take out your calculator because I wouldn’t want to strain your gray matter with the harder forms of math. How much revenue do you think the state will bring in from a well that never gets drilled?
Current taxes on energy extraction are currently bringing in more than $2B, much of which makes its way out to communities around the state. All of those workers who used to be unemployed are now paying more than 3% state income tax into Pennsylvania’s coffers every week. They go out shopping and to dinner and all the other things that employed people do. If you tax the energy companies to the point where they curtail production, you will have truly killed the goose that lays the golden eggs.
I sure hope the voters are happy with that new governor they elected. Sounds like things are going to work out just swimmingly.