DN Editorial: Natural Gas(bag)

IN A DEBATE with Democratic opponent Tom Wolf last week, Gov. Corbett came out swinging against Wolf's support of a 5 percent tax on natural gas drilled in Pennsylvania.

The governor conjured up images of small businesses that would be hurt if we taxed this fledgling industry. He argued that a tax would impede growth. He bragged that we were the only state that made the drillers pay an impact fee, with most of the money going to counties where the wells were located.

Corbett's arguments are bunk.

Let's take them one by one.

There are small businesses that supply the gas companies with services and equipment, but the gas companies themselves are huge corporations, which have specialized in oil and gas exploration for years.

Consider the corporations that lease the most land for drilling in the state. Last year, the big five - Chesapeake, Anadarko, Exco, EOG and XTO - had combined revenues of $56 billion and a combined net profit of nearly $6 billion. Natural gas from Pennsylvania accounted for only a portion of that revenue and income, but to imply that these are small operators is laughable.

Corbett is right that Pennsylvania is the only state with an impact fee, which is paid on each well drilled, to reimburse local governments for stress put on their roads, bridges and environment by nearby drilling.

Other states don't tax wells, but rather the gas those wells yield. The amount of gas Pennsylvania wells have produced has risen dramatically in recent years. In 2011, Pennsylvania was the seventh largest domestic producer of natural gas. One year later, it was No. 3 - behind Texas and Louisiana.

Without a gas tax, Pennsylvania is unable to take advantage of the surge in gas production to realize more revenue.

Take Texas as an example. The state is hardly known as anti-business, but it imposes a 7.5 percent tax on the market value of natural gas extracted from the state's wells. Last year, that tax raised $1.5 billion, nearly double what it was in 2010.

Meanwhile, back in Pennsylvania, our impact fees yielded $223 million last year.

If we imposed a 5 percent tax on gas, it would yield about $500 million and that amount would rise as gas production increases, as it inevitably will.

To that, Corbett would add a "Yes, but . . . " and point out that Pennsylvania also has a high corporate income tax, while other gas-producing states have lower rates or no corporate tax at all.

True again. What the governor fails to mention is that most natural-gas drillers avoid paying the state's main business tax by forming partnerships, which are taxed at a lower rate, or by taking other deductions.

Last year, natural-gas companies paid $10.3 million in state corporate taxes, according to the Pennsylvania Budget and Policy Center. That is a paltry sum.

No one likes to pay taxes, even (or especially) multibillion dollar corporations. But, the gas taxes levied by other states haven't scared companies away. There is too much money to be made in drilling natural gas.

The big difference between Pennsylvania and other natural gas states is that they are getting their share of this bonanza and we are not. For that, we can thank Tom Corbett.