"After his no-new-taxes budget proposal went nowhere last weekend, Republican House Speaker Mike Turzai issued this challenge to his GOP colleagues in the state Senate: You try doing something. On Thursday, the Senate delivered, narrowly approving a plan to balance Pennsylvania’s nearly $32 billion budget in part by taxing drilling for natural gas and raising or imposing new taxes on consumers’ telephone, electric and gas bills. ...

The Senate’s plan imposes a new tax on natural gas extracted from the Marcellus Shale — based on volume — on top of the so-called impact fee drillers currently pay per well to local governments. The proposed tax is expected to rake in $100 million annually. Though there have been calls for nearly a decade for a severance tax, many Republican legislators have resisted it, arguing such a levy would scare away [the gas industry] ... The Senate plan also reinstates a 5.7 percent tax on natural gas bills, with $20 million of the money raised going to the state’s heating assistance program for the poor."

source: July 27, "Pa. Senate approves budget balanced by drilling, utility taxes; its fate in House is unclear". http://www.post-gazette.com/news/politics-state/2017/07/27/Pennsylv...

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So they want to use it to balance the budget, but in doing so there's less drilling here and it will just make it worse?

Two questions:

How much less drilling would there be in PA, with a severance tax? Would we even notice the difference, with the coming increases in price (once more pipelines are completed, and more PA gas is exported, causing domestic prices to rise closer to global prices)?

How would "it just make it worse" if the severance tax revenue is zero or a positive number? Currently our severance tax revenue is zero. If drilling is unchanged after the severance tax starts, and tax revenue is R dollars, then we haven't made the deficit worse. If drilling is reduced to 1/2 (hard to imagine) then tax revenue would be R/2 dollars, and we haven't made it worse. If all drilling ceases because the severance tax scares the gas industry away (unimaginable) then tax revenue would be 0 dollars, and we haven't made the deficit worse.

Wow.  Just wow.  So according to your  *cough * * cough* analysis the state would lose zero revenue if all drilling came to a stop. Guess that $200 mil/yr of impact fees is just an illusion.  Or the taxes paid by employees. Or the taxes paid on the Pa 9.9% corp income tax.  Or the motel room tax the state collects.  Or sales taxes for all the materials they buy.  Or the sales taxes collected when workers spend their hard-earned money. Or the huge amount of support jobs and the myriad revenues they generate. And I guess that land owners just burn the piles of money they get for royalties instead of spending in ways that generate more tax revenue..  Or the royalties that state collects from state forests, parks, gamelands, interstate right of ways, and more state owned properties like prisons, office buildings, or more. Or that collected by local governments, public schools, and other various governmental agencies.

When all added up, the gas industry has been a major funder of state and local governments. The deficit would have been much, much worse if we didn't have this blessing under our feet.

Makes one wonder....do you wear a helmet when you ride? Are you suffering from CTE? 

Here's some math: you say that current impact fees are 200 M$/yr. Let's assume that's correct.

Future revenue from gas industry without severance tax will be 200*vf (in M$/yr), where vf is a variability fraction that is a function of time, affected by natural gas prices, demand, attitudes about global warming, and many other factors.

Article says severance tax is assumed to be 100 M$/yr.

Let's define sf to be the "stay fraction", a constant, the fraction of gas business that stays in the state after the severance tax is imposed; the fraction that aren't scared away. I'd guess that sf is near 1, i.e. that almost all gas business will stay.

Future revenue with severance tax will be (200+100)*sf*vf (in M$/yr) because we have the additional 100 a year from severance tax but some attenuation due to some fraction of business being scared away.

The question is: which policy brings in the most revenue? Which is bigger, 200*vf or 300*sf*vf.

That's a simple algebra problem. The break-event point is when sf=2/3. Which implies (if the 200 and 100 are accurate and we're accounting for the big sources of revenue) that a severance tax will bring in more revenue than no-severance-tax as long as 2/3 or more of the gas business stays in Pennsylvania. That sounds like a safe bet to me.

If Jon or Jim wants to improve my accounting, please go ahead.

First of all, that is a totally different position then when you posted "If all drilling ceases because the severance tax scares the gas industry away (unimaginable) then tax revenue would be 0 dollars, and we haven't made the deficit worse."    So you are in fact admitting your post was wrong and I was right on that point. Thank you.

As to your new position, you over simplified by considering only two variables, the impact fee and the severance tax.  You again ignored all the other variable taxes and fees that are paid by drillers, their contractors, suppliers, employees, related government activities, landowners and more like motels, restaurants/food suppliers, cleaning services and more. Such simple 'math' is ignoring the big picture and distorting the truth.

Further, I am against the severance tax on other issues.  Pa already has among the highest taxes in the land.  When you say that states like Tx and Ok have a severance so we should also you and your fellow travellors ignore the fact that those states have no state income tax....personal pr business... have no state sales tax, and much less of the other web of taxes that Pa has. I have yet to see a study showing the total tax burden of drillers in Pa vs those in Tx.  We should know all the facts not just ones cherry pick by those with an agenda.

Another reason is that gas in Pa sells for way below market, some as low as $1.50/MCF.  That is because there are not near enough pipelines to get it to markets.  Thanks to the antis like you many projects have been stopped or greatly delayed.  Adding more costs and red tape to an industry that is already at a severe disadvantage will amplify the affects of a severance tax beyond normal variances.

Another big reason that I oppose a severance tax is that it will go into the general fund and be siphoned away by Philly corruptocrats and all the politicians from the SE corner of Pa like most of our tax dollars are taken. Did you know that Gov Rendell stole some 300 million dollars of federal fuel tax money around 2003?  By law it was supposed to go to all municipalities based on road mileage computations in each muny but Rendell stole it and gave it to Philly to fund their mass transit system. A week later the bus drivers went on strike demanding more money.

Drive ...or ride your bike...into E Pa and you will see a totally different world.  New businesses, great roads, great schools...its like a different country when you cross the mountains.  W Pa has been ignored for decades and now they want to steal more from us.

Screw them all.  If I could I would break away and start a new state with E Oh ( which gets the same treatment from Columbus) and w NY which gets the same treatment from Albany.

Thank you Jim for understanding basic economics theory. Paul and his liberal brethren never factor in the additive effect of over taxation. They think that adding taxes has no effect on business, so everything would be equal in their simplistic view of how business works. They all cried when "Reagonomics" was ruining our country, the reality is that we were never better off than then (in my 48 years on this earth). Politicians should be required to take Economics 101 before they cast their votes that impact the economy. They simply dont or wont understand capitalism.

David. I am afraid that the antis know economics more than you think.  They know that a substantial severance tax will accomplish much of what they have been trying to do...stop or severely limit drilling. Look at Paul's post and the terms he used....he is educated in economics  He basically said that 2-1=1 and that 1>0 but dressed it up in professorial flourishes to make it sound complex and impactful. He, and they, are just using what they can to achieve their goals.

What bothers me most is that when Paul and other spew their spiel their followers just nod and applaud without any critical thinking or analyzing the data.  What I posted about is very basic stuff that anyone would realize if they just thought about the issues for a while. People are so blind and so lazy that they make no attempt at understanding complex issues.  Thus the few aggressive antis are able to snooker the masses and win the battles.

Paul posts here often, from poorly run studies to misinterpreting data and more,  and usually loses his arguments big time.  That shows that the antis positions are weak but since very few pay close attention to both sides of the discussion, they are winning the argument. The industry needs to do a much better job than they have been doing.

The real issue here is that they are not "balancing the budget". When you balance your budget, do you get to just grab more money to cover your excessive spending?  We need to convince these politicians that this is not an acceptable form of government - to just keep taking more from each and every source you can get away with it for in order to pay for things you cannot afford.  Pennsylvanians, contact your representatives and tell them that any "balancing the budget" by money grabbing  and imposing new taxes on us will not be tolerated and you will vote them out if they don't block it.

And for those of you who haven't figured it out yet, every tax that is placed on "big business" gets passed along and paid by the end consumer. That's you and me regardless of whether or not we are directly involved with the business. So if you think a gas severance tax is okay because it taxes "them" and not you, think again.

BTW, every penny of gas being extracted in PA is being taxed multiple times, from income taxes on royalties to oil and gas industry workers' income tax to the sales tax when the money is spent to buy things to the fuel tax (PA ranks # 1 in this I think) when they fill up the thousands of vehicles being used in the industry... All in addition to the already assessed impact fees that are rightly going to the localities whose infrastructures are actually being impacted by the industry.

The way to balance a budget is to curb spending and grow the economy to increase revenues from existing taxes, not add new taxes!

Oh, and by the way, for those of you who agree with this part of the "budget balancing", not only will your gas bill go up (as will other things that you buy that depend on gas) because of the passing along of the severance tax, you will also be getting billed the additional 5.7 percent tax on your gas bill that is part of this "budget balancing". Just like the 5.7 percent gas bill tax that will be charged restaurants that you go to that use gas to cook and heat and the stores that you go to that use gas to heat and the hotels that you go to that use gas to cook and heat and the power plants that use gas to generate the electricity that you and the company you work for pay for and ...

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