OUR VIEW: Boost in tax on drillers good idea

current severance rate much lower thaN neighboring states

Published:

Gov. John Kasich says a

plan by House Republicans to revamp a tax on the oil and gas industry isn't enough. He wants a higher severance tax than they're proposing.

Republican leaders balked at Kasich's proposal earlier this year to boost the severance tax and funnel some of the money back to taxpayers in the form of an income tax cut. They say their revised plan -- House Bill 375 -- will boost revenue while encouraging more drilling in Ohio.

Our hope is that the governor and the Statehouse leadership will reach a compromise that will see an increase in the taxes the industry pays and, hopefully, a return of some of the revenues to Ohioans. But we're inclined to agree with Kasich. The present severance tax is puny in comparison to what drillers pay in neighboring states. They ought to pay more.

The boom in oil and gas drilling, most evident in the fracking operations that are under way in several eastern Ohio counties, has created jobs and spurred economic development. It also has created environmental concerns that remain largely unaddressed.

As Kasich has noted, most of the drillers are from out of state, which means that they are benefiting from finite natural resources in Ohio. He contends that Ohioans ought to share in some of the profits of oil and gas exploration in their state.

Ohio's severance tax on natural gas, which is levied on oil and gas producers, is roughly 1 percent, which is one of the lowest rates in the nation. Kasich's earlier proposal would have increased the severance tax to 4 percent on a progressive basis after one or two years of production. That would have been in line with neighboring West Virginia and Michigan, which impose a 5 percent severance tax.

House Bill 375, the GOP alternative, calls for a paltry tax by comparison. The measure would tax oil and gas at 1 percent for the first five years of production, then boost the severance tax rate to 2 percent afterward as long as production remains high. The lower rate during the first years of production will allow producers to recoup start-up costs, supporters of the bill say.

Kasich's plan would have generated about $2.8 billion in revenue for the state over 10 years; the estimated return from House Bill 375 is $1.7 billion. That's quite a gap.

The governor says he and the GOP leadership are "working through the process," despite his reservations about House Bill 375. We hope they continue to work on it, because -- as the governor said -- as it now stands, the severance tax measure is not enough.

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