Allegheny Institute: Severance tax would threaten industry's health

The Allegheny Institute for Public Policy recently criticized a proposed severance tax in an editorial posted last week on its website, in which the institute raised several inquiries about the motivations behind and efficacy of the newly proposed legislation.

 The institute’s hesitation over Gov. Tom Wolf's plan is fueled by questions it has about some of the budget’s points -- which would rely on the fluctuating and therefore unpredictable price of natural gas -- such as allocating Marcellus Shale tax income to fund education improvements before funds actually materialize, as well as using a possibly irrelevant hub price to calculate returns.

“The problem the severance tax proposal faces is that prices do, in fact, fluctuate,” the institute said. Noting that corporate taxes would be lower, the institute said the amount available for royalty payments and the return rate on investments would thus also be lower.

“In effect, the tax is an added cost on production. When costs go up and cannot be passed on in prices, it hurts investment and production,” the think tank said. “The ramifications for the future of this industry in Pennsylvania need to be weighed carefully before this tax grab is even considered seriously by the Legislature.”

The institute said the designation of tax revenue toward education should be more tangibly accounted for, suggesting that the General Assembly ask for concessions and make a stronger effort toward equalizing the state school districts’ dramatically divergent achievement benchmarks.

“The severance tax arguments are a red herring to take people’s minds off the real fundamental structural problems the state is beset with…and it is also an effort to make people believe there are easy and quick fixes to the state’s financial woes that can be dumped on the backs of the shale industry.”

The Allegheny Institute for Public Policy, operational since 1995, is a commercial nonphysical research company located in Pittsburgh. The institute performs detailed research on local policy issues, publishing its findings in reports and policy briefs. Unlike many think tanks, it actively promotes its findings by providing this information to local policy makers.

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