Ohio Republican Gov. John Kasich’s plan to cut the state’s income taxes by taxing shale drilling may face resistance from his own party. The “frack tax” revenue, which would offset the costs of an across-the-board income tax cut, is a key element of Kasich’s new policy proposals, reports the Columbus Dispatch
The income tax cuts could begin at 1.6 percent in 2014 and grow to a 5 percent cut by 2017 —bringing in as much as $500 million yearly.
“I’m not sure the [Republican] caucus in the House is receptive to the recommendations on oil and gas that the governor has made,” said Rep. Peter Beck, a Republican who chairs the House Ways and Means Committee, which is considering the governor’s tax proposals.
Kasich’s plan calls for taxing crude oil and liquid natural gas from fracked wells, beginning at 1.5 percent of gross receipts and going up to 4 percent, all depending on when each drilling company recoups its start-up costs. Dry gas would also fall under Kasich’s tax plan, and would be charged at 1 percent.
However, Beck said the tax targets an industry that’s still developing, and Republican Sen. Tim Schaffer, who heads the Senate Ways and Means Committee, said while he’s “all about tax cuts,” he and the committee are not in favor of tax increases like the frack tax.
The new tax, if approved, could drive drilling companies away from Ohio, warns state Petroleum Council President Terry Fleming.
“Recent industry investments in Ohio are based on a tax and regulatory structure that was just put in place in 2010,” said Fleming. “Any change to that structure could drive away investment from the state, and send local jobs with them. It could also eliminate critical state revenues that come from current taxes on all gases and liquids extracted from the ground in the state.”
Kasich said he knows his plan might be blocked by politics, but “every Ohioan ought to benefit from this prosperity [from shale drilling], this wealth.”
Senate President Tom Niehaus, a Republican, said Ohio should get fair compensation for its natural resources, but said the state shouldn’t be anti-competitive with other states’ tax rates and discourage investment.
However, the Kasich administration said the proposed taxes are lower than rates charged in Michigan, Texas, North Dakota, and West Virginia.
Meanwhile, the state’s Democrats favor increasing taxes on shale drilling, but say an income-tax cut should not happen while schools and local governments are dealing with budget cuts.
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