The Ohio legislature should support Gov. John Kasich's proposal to modestly boost the severance tax in exchange for a reduction in the state income tax.
The Ohio severance tax, which is levied on oil and gas wells, is currently the lowest of those states currently enjoying the fracking boom. The small bump that Governor Kasich is proposing would keep the state competitive in the drive to access gas resources locked up in Utica and Marcellus shale. The revenues derived could help the state maintain appropriate oversight of the industry, the better to minimize any environmental and infrastructure damage that might occur because of its activities.
The oil and gas industry stands to benefit greatly from exploration of Ohio's natural resources. It is not unreasonable for the state to expect some share of the potential bonanza. Even if Kasich's proposal is approved, Ohio's oil and gas taxes will remain among the lowest in the nation; the tax would be 4 percent for oil and liquid natural gas and 1 percent for gas.
Assuming the Ohio legislature goes along with the governor's call to cut the income tax once more, the revenues derived from a slightly higher severance tax would enable the state to plug some holes that will likely crop up because of lower income taxes. Kasich is seeking a 20 percent reduction in the state income tax, a measure that he contends will spur economic development and improve Ohio's business climate.
The potential wealth creation that can occur because of fracking will keep the oil and gas industry interested despite the modest increase in the severance tax that Governor Kasich is proposing. While the industry, not surprisingly, opposes the tax measure, given the potential wealth to be reaped from its exploration of Ohio it is unlikely that a modest increase in the severance tax will be a deterrent to drilling.
The legislature should sign off on this justifiable increase in taxes.