COLUMBUS — Gov. John Kasich pushed back late Friday when members of his own party in the General Assembly threw up a roadblock to passage of his plan to tie an income tax cut for all Ohioans to an expanded tax on oil and natural gas extraction.
House Republican legislative leaders said they will not immediately pursue enactment of his plan because of fears that the expanded severance tax could stymie the expected boom before it can take hold.
"Somebody is going to benefit from low taxes," an obviously agitated governor said. "It's either going to be the people of Ohio and the small-business community or the investors of these energy companies."
On Wednesday, Mr. Kasich unveiled plans to underwrite a cut in the personal income tax across all brackets through changes in Ohio's 40-year-old severance tax affecting natural gas and oil liquids expected to be extracted largely by new hydraulic fracturing in eastern Ohio.
There was immediate suspicion of the plan among some fellow Republicans, despite the fact that the governor vowed that every new penny generated from the tax on hydraulic fracturing, or "fracking", would go toward income tax reductions. That, he said, should provide cover for lawmakers afraid of violating pledges not to raise taxes, particularly during an election year.
"This is not a tax increase. This is a tax cut …, " Mr. Kasich said. "They must not understand the plan because it's revenue neutral. Even the people who took the pledge would find themselves in a comfortable position."
Rep. Ron Amstutz (R., Wooster), chairman of the House Finance and Appropriations Committee, said he expects to remove severance and income tax language from Mr. Kasich's broader midbudget review proposal.
"The more the members of our caucus have learned about this particular proposal, the more concerned I've become that there are key questions that cannot be sufficiently answered and resolved within the available legislative time frame -- especially in light of all the other legislative work on our plate," he said.
Mr. Amstutz added that the proposal could be considered later as part of a broader tax-reform debate.
The governor learned of House Republicans' plans late on Friday and immediately scheduled a conference call with reporters in hopes of applying public pressure on lawmakers to reconsider.
"I know special interest groups affected by the modernization of the severance tax have a different point of view than I have on this …, " Mr. Kasich said. "Our legislators over time will come to see that the proposal we have will allow companies to be enormously successful in this state. Do you think all the profits from this extremely profitable resource should be taken out of Ohio or should Ohioans profit from it?"
He declined to specify who those "special interests" are, although the oil and gas industry has been outspoken in its opposition.
"I'll name them at a later date," Mr. Kasich said.
Fracking generally involves using fluids at high pressure to fracture shale abundant in portions of eastern Ohio to release the oil and gas trapped within.
Mr. Kasich's plan calls for high-volume horizontal wells during their first year of operation to pay a 1.5 percent tax on their sales of natural gas and crude oil liquids. The lower rate, he said, is aimed at allowing drillers to recoup their initial costs.
Then the tax would climb to 4 percent. Taxes on small natural gas wells would be eliminated, and taxes would be cut for traditional natural gas high-volume horizontal wells.
Ohio does not currently tax the type of liquids extracted from fracking and horizontal well operations.
Mr. Kasich said Ohio is now reaping benefits from a better reputation among businesses, in part because of a 21 percent across-the-board income tax on individuals and small businesses rolled out over the course of seven years.
He noted that Moody's became the last credit rating agency to remove a negative outlook from Ohio's rating.
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