Taxes

By Rebecca, Energy Citizens Ohio

In its analysis of Governor John Kasich’s budget, the Cincinnati Enquirer noted that the Governor’s severance tax hike would affect “out-of-state” producers.[1]  

It begs the question, why should Ohioans worry about the fortunes of companies that are out of state? Because that’s exactly how economic growth in any state is driven:  By convincing investors from other places to send their limited capital here.   In fact, it has been coming in droves—just take two examples that have been in the headlines recently:

• Oklahoma City-based Gulfport Energy just invested $220 million to purchase 22,000 acres of land from Windsor Ohio LLC.  That’s just to acquire the land—it will need to devote much more to actually extract resources from the land, and that means it will be hiring a lot of Ohio workers.
• Meanwhile, Denver-based MarkWest Energy said it will invest $1.9 billion near Cadiz to increase its processing capacity and build a network of pipelines in the area.  That means the company will hire new employees as well as creating construction jobs and jobs in the supply chain.

So why didn’t these companies just invest in Oklahoma City and Denver?  Because they believe using their capital in Ohio will provide the best possible return on their investment.

But a large severance tax hike will, of course, alter their return on investment. 

No one is claiming that these or other companies driving the Shale Revolution will pack up and leave because of the tax hike.  But we must understand that anytime overzealous taxation is allowed to diminish a company’s return on investment they will have less capital to reinvest.

That means fewer jobs created here in Ohio.  So when we talk about targeting “out of state” companies with this tax hike, Ohio isn’t any better off for it when it taxes in-state companies.  In fact, the very opposite is true.

It calls to mind that old expression:  “Don’t bite the hand that feeds you.”

Additionally, Ohioans will be affected by many related sales tax issues.  Sales tax will now be applied to Ohio attorneys, accountants, engineers, scientists, waste management and remediation services just to name a few.  Ohioans employing any of the above services will be paying a new 5.0 % tax on their services.   Ohio landowners are not spared from new taxes either.  Most landowners will pay some or all of the increased severance tax. This new tax environment is sure to make Ohio less competitive with its neighbors that truly are open for business.  

A: By allowing oil and natural gas companies to use the same tax code as all other U.S. manufacturers, all U.S. industry thrives, it creates jobs and economic growth, and strengthens U.S. energy security.  When the government picks winners and losers, they remove incentives to expand production and jobs, and create incentives to buy energy from overseas.

In 2010, the energy industry invested more than $470 billion to the U.S. economy—more than half the size of the 2009 stimulus package.  

A smart energy policy is the best stimulus the economy can receive, which is why Energy Citizens work together to influence decision makers in Washington and at the state and local levels. 

A: If you have a mutual fund account, and 52 million U.S. households do, there’s a good chance that you are hurt.

If you have an IRA or personal retirement account, and 49 million U.S. households do, there’s a good chance that you are hurt.

A recent study shows energy stocks perform better than all others in state public pension funds.

A: Yes and no; total profits don’t tell the whole story.  In the last 5 years, oil and natural gas earnings are lower on a percentage basis than all manufacturing. In 2011, the oil and natural gas industry earned only 7.1 cents for every dollar of sales.  All manufacturing earned 9.2 cents for every dollar of sales.

Energy Citizens recognize that the energy industry is very large, but that also means it is one of the biggest job creators and developers of the American economy.   The industry supports 9.2 million American jobs.  The industry invested more than $2 trillion in U.S. capital projects over the past decade, including more than $71 billion in low and zero emission technologies.