The Pennsylvania Policy Blog

State lawmakers will return to Harrisburg in a few weeks and one of the major policy issues on their fall agenda is the passage of a severance tax on natural gas extracted from the Marcellus Shale formation.

In a new report, the Pennsylvania Budget and Policy Center (PBPC) makes several recommendations to ensure that lawmakers enact a severance tax that fairly compensates residents for the removal of this nonrenewable resource. The recommendations include:

• Setting a reasonable tax rate that is comparable to West Virginia’s rate in order to remove any incentive or disincentive for drilling in one state or the other;
• Limiting unnecessary loopholes and deductions, including a tax break for the recovery of capital investments and an exemption for low-producing wells; and
• Creating a sensible plan for sharing revenue between the state, local governments and environmental programs.

The report also recommends that lawmakers reverse a 2002 court decision that has prevented local governments and school districts from assessing property taxes on oil and gas interests. Finally, the center urges lawmakers and state officials to ensure that there is transparency in collecting and reporting drilling production.

Every state with mineral wealth, except Pennsylvania, imposes a severance tax to compensate residents for the removal of nonrenewable resources. The tax is an important source of state revenue to support services such as education, health care, environmental protection, early childhood education, and support for people with disabilities. It also provides revenue to local governments in many states to help pay for the social and public costs of increased drilling.

Check out the Pennsylvania Budget and Policy Center’s report today! It’s brief, easy to read and lays out the important policy considerations before lawmakers as they shape a Marcellus Shale severance tax.

You can also access other reports and resources at PBPC’s Severance Tax Resource Page.

Our D.C.-based friend Rob Atkinson from the Innovation Technology and Innovation Foundation points to an interesting post by Stephen Ezell from the Progressive Fix blog critiquing last week’s cover story of The Economist, Picking winners, saving losers. In a unoriginal and ideological attack, The Economist assails nations’ industrial policies, arguing that they almost always fail and constitute inappropriate government intervention in markets. Atkinson picks this argument apart. The Economist’s glosses over a litany of successful contributions U.S. innovation policies have made to spurring economic growth, and fails to explain how the private sector alone could have created the Internet or mapped the human genome. He notes that, though neoclassical economists may not like it, governments play a legitimate and crucial role in shaping the innovation capabilities of national economies. The countries that develop the best strategies and skills at fostering, developing, and delivering innovation are the ones that will have the highest living standards.

Read Ezell’s blog.