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Concerns for severance tax Sunday, Mar 23, 2008 By David Sanders With little more than a week having passed since the governor unveiled his proposal to increase the state's severance tax, a few undecided lawmakers, acting in good faith, are still sorting through the arguments both for and against. During that time, some of the plan's more overzealous supporters have begun to rely on arguments that are disingenuous and misleading. At a meeting with lawmakers last week, one of the governor's high-ranking lieutenants tried to earn support for his boss' proposal by reducing his argument to its simplest terms: (and I paraphrase a paraphrase) The natural gas companies have come into our state, are pumping our natural resources out of the ground, shipping them out of the state and all the while the state government isn't getting anything. By "anything," I was told by the lawmaker who relayed the story that the governor's representative meant tax revenue. It's the type of argument one could expect to hear in a state unable to shake its populist roots. It's also worth mentioning that this is the same agreement the natural gas industry is backing, yet apparently some in the administration don't mind maligning the very industry with which it had negotiated. The problem with such a claim - besides the fact that it is insulting to one's intelligence - is that it's simply not true and can be refuted with data. Last week, the University of Arkansas' Center for Business and Economic Research released its report projecting the economic impact of the Fayetteville Shale play. The report estimated that "$1.8 billion of direct expenditures led to total economic output of $2.6 billion and employment of 9,533 people." During the same period, the report showed that the state has benefited enormously in terms of tax revenue. In 2007 alone, the report estimated state government collected over $54 million in taxes as a result of development in the play. While severance taxes only comprised around $266,000, almost $40 million came from income taxes on both employment and natural gas production; more than $11 million came from sales taxes from employment and royalties and roughly $3.7 million came from property taxes paid from production. It's also estimated that $8.3 million in local taxes were generated. The same report estimated that from 2008-2012 the total economic impact will be around $17.9 billion, while employing up to 11,000 people. During that five-year period it is estimated the state will collect over $1.7 billion dollars in tax revenue while local governments collect $150 million. Supporters of increasing the severance tax are quick to cite Texas and Oklahoma as examples of states Arkansas should follow. But, unlike Arkansas, Texas does not have an income tax and Oklahoma's top income tax rate of 6.25 percent is lower than Arkansas top rate of 7 percent. Contrasting with Arkansas, which charges a 6 percent residential sales tax on gas, neither Texas nor Oklahoma has a residential sales tax. Arkansas also charges an ad valorem tax on minerals, but Oklahoma does not. While Texas has a severance tax rate of 7.5 percent, and Oklahoma levies its tax at 7 percent, both of those states have numerous exemptions to encourage growth in the industry. In Texas' Barnett Shale, the state has waived the severance tax for 10 years to encourage development. Yet remarkably neither Oklahoma's nor Texas' governors are clamoring to raise income and sales taxes. Unlike Arkansas, elected officials in those two states recognize the natural gas industry's value. So, whose lead are we following? ------- 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. |
