Governor Kasich’s difficult balancing act on energy and taxes

In the run up to Super Tuesday, and now in its aftermath, a public policy issue was starting to heat up; one that has the makings of a very interesting, if contentious, debate: Governor Kasich’s proposals to leverage any potential energy boom in Ohio to reduce income taxes.

The Plain Dealer has the details that are available:

Ohio Gov. John Kasich will propose a new tax on a form of oil and gas drilling known as horizontal fracking and then use the fresh revenue to give a personal income tax cut to Ohioans, The Plain Dealer has learned.

The complicated plan also would make changes to various existing taxes petroleum companies pay for pumping out oil and natural gas from beneath Ohio. And it even contains a tax break for some smaller operators, according to documents obtained by The Plain Dealer and confirmed by the governor’s office.

The obvious reaction in the oil and gas industry, quite understandably, was to immediately to push back against any effort to raise fees or taxes.  And the gut instinct of many conservatives, and of those who support free markets, was similar: why raise taxes on some to cut taxes on others? Why not just cut spending?

And that is a good instinct and one we should always have as a check against the default position of growing government.  But what should also be weighed in this debate is Kasich’s plan to use this opportunity to do something really important: lowering the income tax.  Equally important is the chance to move – even if ever so slowly, and in a small way – from a tax code that largely taxes income and investment to one that gets its revenues from use and consumption taxes.

Lost in the loud and insistent demands from the left that Ohio raise taxes and fees to match the highest in the country and then spend that money on programs – besides being a recipe for economic stagnation and debt – is that other energy and growth states do not have this approach.  Instead, these states have higher energy (and consumption) taxes and much lower income based taxes.

This is the path Ohio needs to be on.  The state has made some strides in lowering income taxes at the state level, and that is to be applauded, but this only gets you so far when you are competing with states with no income taxes.

If Ohio is truly to undergo a wholesale change in scope and size to its energy sector it is appropriate to review and update our tax and fee structure to reflect the technologies, economics, infrastructure needs, and industries involved and reform the system to reflect that reality.  Not as an excuse to grow government but to look for ways to implement necessary government function more effectively and efficiently.

As the saying goes, the devil is in the details, but Kasich appears to be proposing a system that holds harmless, or actually lowers taxes, both small energy producers and small businesses while broadening the tax base for larger companies, helping local communities and taking steps toward lowering the income tax.  If these details hold true, this is a proposal that deserves serious consideration.

Yes, raising the cost of doing business on anyone should throw up red flags and be a cause for concern.  But reform often involves winners and losers. To deny that is to deny reality.  Long-term tax reform, however, is a central path to growth and opportunity for Ohio.

Any proposal that moves us in that direction should not be dismissed easily.

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One comment on “Governor Kasich’s difficult balancing act on energy and taxes

  1. Gov. John Kasick’s idea of placing a new tax (or an increased one) on oil & gas fracking and then use that revenue to lower Ohio’s personal income tax is a good one.


    Because, aside from the valid reason cited in the Buckeye Institute post above, it is smart politics. That is, Gov. Kasich’s proposal will allow all Ohioans to share more directly in energy boom that is resulting from fracking.

    Yes, gas/oil fracking is a blessing, and it is here to stay. But still, there’s annoying resistance to it from a number of quarters.

    Some of this comes from the usual suspects — the environmental radials to whom any development is verboten.

    But there are others who resist fracking out of envy. They see their neighbors getting paid for gas/oil leases and feel left out. Spreading some of the immense wealth from this new found energy source is prudent, wise, ….. and righteous.

    Think of the Democrat alternative. Not only would they over tax energy development, but then they’d use that revenue to further bloat the state and thereby make the needed structural reforms in government all that much harder.

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