Tax plan could put Kasich over a barrel — of oil

The Toledo Blade - March 25, 2012

David Kushma

Gov. John Kasich probably won’t appreciate the comparison.

But Ohio’s second-year Republican chief executive may be starting to understand the frustration President Obama must feel when his agenda is thwarted by GOP lawmakers who are more intent on protecting the special interests that bankroll their campaigns than on making inclusive policy.

The budget plan Mr. Kasich proposed this month would raise the state tax on oil and natural-gas extraction, in anticipation of the fracking boom he predicts is just around the corner in Ohio. The governor would use the proceeds from that tax hike to pay for an across-the-board state income tax cut for individuals and businesses, keeping a campaign promise.

That swap has several big problems. The severance tax increase the governor seeks would keep Ohio’s tax rate needlessly lower than those of other states. It includes too many givebacks to oil and gas producers. Despite some strengthening, it is not accompanied by regulation adequate to protect Ohio’s environment and communities from potentially risky consequences of the hydraulic-fracturing method of drilling.

And instead of passing yet another tax cut that mostly would benefit the richest Ohioans, Columbus should be working to begin to restore the devastating budget cuts it’s made in the past few years to vital state services and aid to local schools, governments, and libraries. That’s especially true if fracking, as seems likely, raises local costs for such things as maintenance of roads and other infrastructure.

Even as the governor calls his plan “one of those things I have to do,” the debate may be moot. Ohio’s politically powerful oil and gas lobby sounds the predictable alarm that the tax hike would cost the state jobs and economic growth. Anti-tax groups predictably, and recklessly, demand that the regressive income tax cut must be paid for with further spending cuts rather than an offsetting tax increase.

And just as predictably, when such folks talk — especially in an election year — Republican politicians listen. Leaders of the GOP-controlled General Assembly are balking at the governor’s modest proposal.

Drillers threaten to go elsewhere if their state tax bill increases here. But the rich stocks of oil and gas awaiting liberation from Ohio’s portions of the Marcellus and Utica shales won’t follow them. And if producers want to tap these nonrenewable resources badly enough — and they do — they’ll pay a reasonable severance tax rate.

During a discussion last week with editorial writers for Ohio newspapers, Mr. Kasich sought to explain why he seeks a 4-percent severance tax on fracked oil in Ohio, up from the current minuscule 20 cents per barrel, but less than the 5-percent rate levied in Michigan and West Virginia.

“Is there magic in four percent?” the governor said. “No, but it feels right.”

Well, as long as there’s a rational basis for the policy.

The governor invoked similar feel-good economics to insist that his income tax cut, which he says eventually would amount to more than $600 million a year, would help Ohio households and small businesses more than any restoration of slashed public services. He compared proposals for the latter to Mr. Obama’s maligned stimulus program.

“A rising tide will lift all boats,” the governor said, several times. But not equally.

The advocacy group Policy Matters Ohio estimates that the state’s 1 percent — people with annual household incomes of at least $321,000 — would get as much as $2,300 a year, on average, from the governor’s tax cut. Their share of the cut would be almost twice as much as the bottom 60 percent of Ohioans put together would receive.

The middle 20 percent — those who make between $32,000 and $49,000 a year — would get, at most, an average annual tax cut of $42. As Policy Matters notes, that amount wouldn’t pay to fill your car’s gas tank once. How would that compare with the benefits of providing more state aid to rehire some of the cops and teachers and firefighters who have been laid off during the recession, or to limit increases in local taxes?

The two-year, $55.8 billion state budget Governor Kasich seeks to update already has cut state aid to public schools by $1.8 billion. Yet without providing new money, the governor’s budget proposal would impose new mandates on schools.

Among other things, it would require schools to do more to improve the reading skills of students in the first three grades who are at risk of academic failure. That’s surely a worthwhile goal, but who’s going to pay for it?

Toledo Schools Superintendent Jerome Pecko argues that as state government seeks to attract employers and improve Ohio’s economy, it can’t continue to pay for its “money grab” by depriving schools of resources.

“I don’t know how much homework Kasich is doing,” Mr. Pecko told me last week. “He needs to do better research before he starts making comments about schools. We need the support of people in Columbus, not an adversarial relationship. These are pretty scary times.”

The governor’s tax proposals will define whether his budget plan succeeds. And since he knows he’ll face resistance from his fellow Republicans no matter what he does, then he may as well do it right.

Forget about further distorting Ohio’s tax structure with another unbalanced tax cut. Tax oil and gas producers reasonably, but adequately. And distribute the benefits of that tax on natural resources fairly among all Ohioans, not just the favored few.

David Kushma is editor of The Blade.

Tax plan could put Kasich over a barrel — of oil 

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