Taxing oil and gas to provide income tax cuts makes sense

The past week was an unusually busy one for news generated in this area by the ever-emerging oil and gas industry tied to hydraulic fracturing of the Utica and Marcellus shales.

From the announcement of plans for a $900 million gas processing plant near Hanoverton, to an areawide meeting of contractors and union leaders to discuss maximizing the benefits of the anticipated oil-and-gas boom, to marking the one-year anniversary of the first earthquake triggered by an injection well in Youngstown, shale oil and gas were making headlines.

One of the biggest came out of Columbus, where Gov. John Kasich announced proposed taxes on oil and gas production coupled with future reductions in the state’s income tax.

Kasich’s proposal may not be perfect, but it is sound. Working out the rough spots is what the Legislature is supposed to do, and the hearings that have already begun in Columbus is where such work should be done.

What’s involved

On its face, Kasich’s proposal appears fundamentally sound. There is little change for conventional wells, while Kasich has proposed taxes on high-volume fracking wells at 1 percent and 1.5 percent for the first year or two, until initial drilling costs are recovered, and then 4 percent thereafter. Drillers would also prepay $25,000 per well to local governments to cover associated road repairs and other traffic costs. The companies would recoup those payments over time through tax credits.

Kasich’s proposed tax rates on oil and gas are lower than most other states, including Texas, a traditional oil state, and North Dakota, which is undergoing a well- publicized energy boom. That would tend to allay fears that these taxes will seriously discourage development of the Utica and Marcellus fields in Ohio.

What remains to be worked out are the mechanics of implementing income tax cuts for Ohio residents in a way that is not only fair, but that does the most to help revitalize the state’s economy. That could be an area in which Republicans and Democrats disagree.

But the bottom line remains: Almost everyone loves a tax cut.