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Natural Gas Tax Would Stifle Jobs and Economy

May 08, 2015 Energy

Study: New severance tax would stifle job growth and economic benefits of Pennsylvania’s energy development

Harrisburg, Pa., May 7, 2015 —Taxing a highly productive industry that supports thousands of jobs and generates billions in economic output and millions in tax revenues has negative economic consequences for the Commonwealth of Pennsylvania, according to a Natural Resource Economics, Inc., study released today by the Associated Petroleum Industries of Pennsylvania (API-PA). 

“Higher energy taxes could put a damper on energy activity, and the Commonwealth could be worse off with a new severance tax,” said API-PA Executive Director Stephanie Wissman. “Natural gas development supports hundreds of thousands of jobs in Pennsylvania, contributes $34.7 billion annually to the state economy and has boosted profits in more than 1,300 businesses of all sizes up and down the energy supply chain.” 

The report, “The Economic Impacts of the Proposed Natural Gas Severance Tax in Pennsylvania,” analyzed the impact of Gov. Wolf’s proposal to implement an additional natural gas severance tax. Proposals include adding 5 percent on the gross market value of production plus a fixed fee of 4.7 cents per thousand cubic feet produced and establishing an artificial floor of $2.97 per thousand cubic feet regardless of the actual price of natural gas. 

“If a new tax is created, in 2016 alone, the commonwealth could lose six thousand jobs, not just in the oil and gas sector but also across a range of industries that are part of the gas industry supply chain and from service industries that depend on spending by workers employed in these industries,” Wissman said. “Safe, responsible natural gas development has been good for the state economy, good for local economies and good for Pennsylvanians. We want to keep it that way.”

The U.S. oil and natural gas industry delivers hundreds of millions of dollars to the Commonwealth. The current local impact tax, which is collected from every shale drilling site in the state, has distributed more than $630 million to communities since 2012 – including more than $224 million in just 2014. That’s on top of over $2.1 billion in state and local taxes already generated by our industry.

Under Pennsylvania law, the passage of a new severance tax would repeal the existing natural gas impact fee. Investment and production losses resulting from a new tax could lead to cumulative losses of over $20 billion in value added or gross state product to the Pennsylvania economy from 2016 to 2025, according to the study. By 2025, supported employment in the state could drop by nearly 18,000 relative to projected levels without the tax. The relatively high paying construction and oil and gas sectors would be hardest hit.

“State lawmakers should reject the severance tax so that the benefits of Pennsylvania’s energy development continue to flow,” said Wissman.

The API-PA is a division of API, which represents all segments of America’s oil and natural gas industry. Its more than 625 members produce, process, and distribute most of the nation’s energy. The industry also supports 9.8 million U.S. jobs and is backed by a growing grassroots movement of more than 25 million Americans.