Gas Extraction Tax: A Bad Idea

It’s no secret that Pennsylvania’s budget woes have put a strain on the state. Since A.) the pot of taxpayer money is not endless; B.) an ever-increasing number of hands are demanding their share from the government till; and C.) the political courage to rein in spending is nonexistent, perhaps we need a tax increase.

But one with a big caveat.

It should only be levied on automotive repair businesses, to the tune of 4 percent. That would make them "pay their fair share," and "would not hinder the future development of the industry." And the tax could be justified because it wouldn’t be a "backbreaker" for those businesses.

And every cent would go to education, even though history tells us that absolutely no positive results will occur.

Crazy? Of course. Yet advocating a tax singling out a particular industry to fund education is exactly what state Senate candidate Tom McGarrigle is proposing. McGarrigle is running for the open 26th District seat as a Republican, but if you didn’t know better, you’d think he was the Democrat. His opponent, Democrat John Kane, already is on record seeking an extraction tax.

McGarrigle is chairman of Delaware County Council. But more important, he’s also president of McGarrigle Automotive Services, a family business. As such, it’s a good bet he would never support a specific tax on automotive services, for reasons that are plainly obvious. It would be needlessly onerous, force automotive repair businesses (and ancillary ones) to raise prices, and result in scaled-back employee hours, hiring freezes and layoffs. Some businesses would even close or move to greener pastures, thus not paying any tax to the state.

But most damning is that it’s simply not fair, penalizing a particular industry in a totally arbitrary way and breeding resentment.

Since those negative repercussions would transcend all industries, why would McGarrigle so vigorously push for a 4 percent severance tax on Pennsylvania’s natural gas companies, as he recently did in a Delco Times op-ed?

Good question.

?

This isn’t just about a tax on gas companies, but how McGarrigle, as senator, would deal with the educational achievement crisis (not a funding crisis, as there isn’t one) and how he views government’s role in dealing with private businesses.

Let’s analyze his position:

Pandering? McGarrigle either truly believes a severance tax policy is the right thing to do (contrary to the GOP platform that raising taxes is not the answer) and that our education woes can be solved by more money (which has consistently proven ineffective), or he is pandering to those he thinks will reward him. Either way, his outlook is troubling.

Pandering hardly ever works, because people see right through the political calculation. When a candidate panders, acting like his opponent, he gets the worst of both worlds: Neither his own party faithful nor those from the other side trust him; it’s a recipe for disaster.

Policy: In addition, the severance tax wouldn’t solve anything because it’s bad policy.

First, there is no such thing as a business tax, as it always becomes a tax on consumers and taxpayers. Second, how does Tom McGarrigle or any elected official know what will "hinder the future development of the (gas) industry," as McGarrigle claimed? It is no different than those outside the automotive repair industry being clueless as to what kind of tax would hinder it or be a "backbreaker" (another McGarrigle term).

Natural gas prices remain low (roughly the same as in the mid-1980s), which significantly cuts into profit margins. With all of the other obstacles faced by the industry, from innumerable regulations to Pennsylvania’s second-highest corporate tax in the nation (not to mention the impact fee and a host of other taxes), McGarrigle’s proposal has no merit.

Advocating the severance tax implies that the industry it isn’t already being taxed, yet it has added $600 million from the impact fee and over $2 billion in corporate taxes to Pennsylvania’s coffers. In addition, it has generated thousands of jobs within the industry and throughout ancillary businesses. But to think the industry can’t be forced to reduce operations or pushed out of the state is naive. McGarrigle’s answer? "I’m not buying it."

Well, that settles that. What a great preview of his legislative style.

Here are a few specifics:

The Practical: McGarrigle states, "By providing a reliable funding source for education, school districts will no longer be forced to raise school property taxes year after year to fund their budgets."

Does he really believe that? First of all, school district reserves grew by $445 million in 2013, to a total of nearly $4 billion. So why are they raising taxes time and again? Because they can and they aren’t going to stop just because a severance tax is enacted.

Second, no matter how much money is given to public education, it will never be enough for the education establishment. From the school districts to the unions, it’s been gimme, gimme, gimme for decades, and the money has flown unimpeded, yet educational achievement continues to stagnate and decline. More money simply isn’t the answer — never has been, never will. The answer is reforming the system from top to bottom, from pensions to school strikes to school choice, but that takes guts and political will. But since neither is on display, the easy campaign rhetoric becomes "more money."

School spending in Pennsylvania is over $25 billion annually, averaging nearly $15,000 per student, more than 39 other states, an amount that has doubled since 1996. There are 35,000 fewer students since 2000, yet 36,000 more public school employees, making it blatantly obvious that increased funding, more personnel and decreased class size has not improved student achievement, which ranks near the bottom in many categories.

Pennsylvania needs elected officials who want to actually fix the problems, not just say the politically correct buzzwords to get elected.

Party: In a district where election results are a foregone conclusion, pandering or pursuing questionable policies usually aren’t enough to affect the outcome. But the 26th District is anything but a gimme. Democrats now outnumber Republicans in Delaware County, and Gov. Tom Corbett’s poor approval rating will drag down the GOP ticket, though how far remains to be seen. Ominously for the party, both Corbett and U.S. Sen. Pat Toomey lost Delaware County in 2010, despite it being the biggest Republican year since 1946.

Those factors make the 26th a battleground, so any wedge issue could have an exponentially higher impact than it would in most other districts. Many rank-and-file Republicans, irked about Corbett’s gasoline tax that gave Pennsylvania the nation’s highest fuel prices (among other issues), have already jettisoned their support for the governor. McGarrigle’s positions of raising taxes, increasing spending and throwing good money after bad in a misguided attempt to fund education could produce the same result.

Given that the 26th will likely be the closest race in the state, any issue alienating McGarrigle’s base could well prove to be the deciding factor. And supporting the natural gas tax to blindly fund education is certainly such an issue.

The natural gas industry has been a blessing for Pennsylvania. But rather than embracing it as the path to a manufacturing revival and overall economic boom, too many are attempting to push it away with unfair penalties.

Those calling for a severance tax should reconsider their position or risk seeing their campaigns completely run out of gas.

Chris Freind is an independent columnist and commentator. His print column appears every Wednesday. He can be reached at [email protected].