Kasich keeps up tax-trade effort

Levy on drilling would result in across-board reduction on incomes

7/14/2012

COLUMBUS -- Gov. John Kasich isn't letting up on trying to breathe legislative life into his plan to trade a tax boost on an anticipated shale oil and gas drilling boom for an across-the-board income tax cut for all Ohioans.

Lawmakers have gone home for the summer and potentially until after the Nov. 6 election without debating his idea.

Despite the governor's promise that every new dollar raised from an increased severance tax would fund a corresponding income tax cut, some fellow Republicans are skittish about touching anything with a tax boost attached during an election year.

Mr. Kasich argued Friday that the expected boom provides a rare opportunity to get largely out-of-state companies to pay for an in-state tax cut. At its peak, the state figures the severance tax hike could generate $500 million a year to reduce income tax rates.

In an attempt to spur support among farmers, the governor highlighted the endorsement of Fred Dailey, former state agricultural director under GOP governors George Voinovich and Bob Taft, and a Knox County farmer with a lease for drilling on his property.

"I'm a fiscal conservative," Mr. Dailey said. "I think state government's too big. I think it spends too much, and it taxes too often. … But I like this proposal. … When you look at it, it's very fair."

The tax issue is opposed by the oil and natural gas industry and has divided the business community.

"When the governor discusses a severance tax increase, he often paints a picture of it applying only to big, out-of-state companies that appear to be cashing in on Ohio's mineral riches," said Tom Stewart, executive vice president of the Ohio Oil and Gas Association.

"In fact, hundreds of homegrown Ohio-based energy producers and hundreds of thousands of Ohio landowners, in most cases farmers in economically depressed areas, will be burdened with a huge tax bill if the governor's proposal comes to fruition," he said.

A number of Democrats have endorsed the tax-boost portion of the plan but want to use the revenue to undo budget cuts for schools and local governments. Conservatives, meanwhile, have urged the governor to proceed with the tax cut without the offsetting tax increase.

On Friday, Mr. Kasich dismissed the prior suggestion but did not outright reject the latter.

"We are engaging in tax reform right now, taking a look at it," he said. "But it is imperative that our income tax go down."

The burgeoning hydraulic fracturing, or "fracking," industry has mostly focused on shale deposits in eastern Ohio. The technology uses chemically treated fluids at high pressure to fracture the stone to release the oil and natural gas trapped within.

The governor's plan would phase in a 4 percent tax on the sale of oil and natural gas liquids harvested from hydraulic fracturing and would provide early breaks to help firms recover their start-up costs. The 4 percent rate would still be the lowest among the hydraulic fracturing states.

The state currently charges 3 cents per 1,000 cubic feet of natural gas and 20 cents for a barrel for oil -- "not fair for Ohio taxpayers" as Mr. Kasich put it.

Opponents of hydraulic fracturing, however, argued that the taxation debate misses the point.

"Our state government should be protecting the health and safety of Ohioans and not generating income from this risky, unconventional, highly industrial, and polluting process," said Susie Beiersdorfer, a geologist and member of Frackfree Mahoning Valley.

"Private profit at public cost does not benefit Ohioans."

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.