States Lose Jobs Due to Severance Tax

Florida’s legislature just passed new legislation to ease the severance tax burden on small oil and gas producers in the state. Drilling companies in the state have been forced to reduce their workforce with some suspending all drilling operations due in part to the state’s severance tax.

While states such as Florida, Louisiana, and Texas are taking measures to reduce their severance tax to keep the industry and its thousands of jobs in their states, Governor Rendell seems determined to force more jobs and revenue out of Pennsylvania to more business-friendly states. Environmental group Penn Future seeks to assist the industry’s exodus by requesting Pennsylvanians to pay $1,000 to increase their taxes.

The Pennsylvania Oil and Gas Association ran data on the past 12 years, finding Rendell’s severance tax rate will cost the industry on average 6.26%. The tax is also highly regressive, taking a larger share of revenue from the smallest producers. To earn Rendell’s estimated $107 million in severance tax collections, drilling companies must drill over 750 new wells in 2009. However, the industry is expected to drill only 300-400 new wells. (Many of the current wells are exploratory, not the developed, producing wells the governor seeks to tax).

If Governor Rendell is allowed to succeed in passing his proposed severance tax, not only will he fail to reach his estimated tax collections but he will force up to 26,000 current jobs sustained by the natural gas industry to other states. Rendell will tax the industry and the state to death.