Pennsylvania Senate to Take Up Unconstitutional Severance Tax Legislation


Posted by Patrick M. Gleason on Tuesday, October 5th, 2010, 3:58 PM PERMALINK

The Pennsylvania House passed legislation last week, SB 1155, that would impose a new severance tax on natural gas extracted from the Marcellus Shale and, at a rate of 39 cents per thousand cubic feet (MCF), make Pennsylvania the most heavily taxed natural gas producing state in the nation according to Harrisburg-based Commonwealth Foundation.

The measure passed 104-94 with 12 Republicans voting in favor. Of the 24 Taxpayer Protection Pledge signers in the Pennsylvania House, all but two upheld their Pledge by voting against this job-killing energy tax hike. Serial Pledge breakers, Reps. Camille George (D-74) and Richard Grucela (D-137), broke their commitment to constituents once again by voting for the severance tax.

The key point of debate was how the revenue from the severance tax, projected to bring in more than $300 million in its first full year of implementation, would be split. The bill that the House approved sends the first $70 million straight into the state’s general fund, the next $5 million is earmarked for job training. After that 32% of the tax revenue goes to local governments, 16% is directed to various environmental funds, and the remainder is tossed into the general fund. Many lawmakers who support a severance tax, voiced opposition to the way the House-passed bill allocates revenue from the new tax.

Rep. Karen Boback (R-117) contended in the Wilke-Barre Times Leader:

....a tax on natural gas should be about protecting our drinking water and supporting the infrastructure in the Shale region, not about building the coffers to support the out-of-control spending in Harrisburg.

Yet with over half of the revenue going straight into the general fund, padding government coffers to support out-of-control spending is primarily what this new tax will do.

Despite missing the self-imposed October 1st deadline for legislative approval of a severance tax, Gov. Rendell and state legislators continue to spread misinformation as they seek to ram through this unnecessary and unconstitutional tax increase.

In response to a recent ATR piece in the POLITICO explaining why a severance tax would be bad for Pennsylvania, Gov. Ed Rendell took to the same publication to claim that a severance tax is needed:

... to cover the burden that our taxpayers are now shouldering for environmental protection and cleanup, emergency services for accidents, road repair and other costs that come from drilling sites.
What Rendell fails to mention is that natural gas producers already pay all environmental clean up and infrastructure costs through existing taxes, fees, fines, and penalties. The fact is that Rendell wants to shake down energy companies to fund the state's structural overspending problem. Again, that's why most of the revenue from the proposed severance tax would go straight to Harrisburg and not the local communities impacted by drilling or environmental funds.
 
Rendell's other retort is that Pennsylvania should impose a severance tax because other natural gas states have a severance tax. Here Rendell's "all the other kids are doing it" argument iimplies that there is no economic cost to implementing a state severance tax because others have such a tax in place.
 
If that is the case, why don't we see countries crawling over each other to raise their corporate income to match the U.S.'s rate, which is second highest in the world. Is it perhaps because there is some competitive and economic advantage to maintaining a lower rate? I would argue so.
 
If Rendell's logic held up, then Ireland would cheerfully be going along with the EU's efforts to force an increase in the Emerald Isle's corporate income tax rate to match the rates found on the continent. Clearly there would be an economic cost to eliminating or reducing this competitive advantage. As a result, Ireland is smartly refusing pressure to raise their rates.
 
Given Rendell's reasoning in support of a severance tax, it's not surprising that he was issued a D in the CATO Insitute's latest Fiscal Policy Report Card.
 
The good news is that the House-passed severance tax appears to be dead on arrival in the Senate, where Republican legislators who control the chamber publicly voiced opposition to both the onerous tax rate set by the House and the fact that the House-passed legislation would likely be deemed unconstitutional by the courts.

ATR will continue to work to defeat this ill-advised and unconstitutional tax increase as it moves to the Senate next week. Gov. Rendell

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