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How about an honest debate? Sunday, Mar 9, 2008 By David Sanders Might I go back to the well? No, not the ink well - the gas well - more specifically, the natural gas well. After scanning previous columns, I discovered that over the past few months, more inches of this space have been dedicated to fiercely opposing any increase in the state's minuscule severance tax than to any other issue, save Mike Huckabee, but he is a man, not an issue. There are a few readers who perceive my resistance to increasing the severance tax as having nothing to do with my fundamental opposition to tax increases because of their detrimental effects on capital formation, job creation, productivity and overall commerce. They also believe my position is unrelated to my general antagonism toward confiscatory policies that impede freedom - economic freedom - or my belief in the perdurable truth: When a government takes more, it spends more, and as a result it grows. Their queries typically have more of a brackish quality and usually go something like, "Are you on the gas company's payroll," which I normally ignore. That said, my motivation is simple. In addition to the aforementioned reasons, my hope is that our state's leaders as a general matter of accepted policy can move beyond the idea that if something good economically is happening, then the state government, by the nature of its existence, has the right to its supposed fair share. How about the governor? Gov. Mike Beebe's myopia on this issue, best I can tell, is all about the money, or, as he might say, is all about the revenue. Sheffield Nelson has a ballot initiative that would raise the severance tax rate to 7 percent on the market value. Beebe's been fairly straightforward about his desire to direct any money collected from new severance taxes to roads. Perhaps his zeal is driven by the fact that the day is coming in which appropriating existing general revenue for roads will be a political reality - one he hopes to avoid by finding a new revenue stream. Nelson wants to fund college scholarships, roads and local governments. But, while their spending priorities are different, their justification for the increase is the same. They both claim Arkansas needs to raise its rate up to closer to its neighboring states, but they actually only mention two of the state's neighbors - Texas, which has a rate of 7.5 percent, and Oklahoma, which levies its tax at 7 percent. But holding their rates out as a model for Arkansas is duplicitous and misleading, because both of those states have numerous exemptions to encourage growth in the industry. For instance, in Texas' Barnett Shale, the state has waived the severance tax for 10 years, and in Oklahoma, wells are allowed to produce for 28 months before severance taxes are charged. Both states have tax credits and exemptions for wells that produce gas at a slower rate; Texas charges a 2.3 percent severance tax on those wells. Arkansas presently charges a 6 percent residential sales tax on gas, while neither Texas nor Oklahoma has a residential sales tax. Arkansas also charges an ad velorum tax on minerals, but Oklahoma does not. What about our other neighboring states? There is a reason they aren't mentioned. Missouri doesn't charge a severance tax. Tennessee has a 3 percent tax assessed on the market value, while Mississippi's rate is 6 percent and Louisiana's rate is effectively a little over 6 percent. Alabama has a rate that varies from 1 percent to 6 percent, depending on the complexity of the well. Natural gas producers, as well as royalty owners, tried to explain the industry economics to Beebe, hoping to get a compromise, but no matter how hard they explained, he either didn't understand or didn't care. So, he's working on his own ballot initiative and it looks like he and Nelson now have a motivation to work together. What these two need to do is look at the entire tax structure in Arkansas and other states, not just try to apply some percentage tax number that sounds good to them. It's not that simple. ------- David Sanders writes twice weekly for the Arkansas News Bureau in Little Rock and is a host of the Arkansas Education Television Network's "Unconventional Wisdom." His e-mail address is DavidJSanders@aol.com. |
