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Tuesday, March 18, 2014

A tale of two states: Texas and Arkansas and the shale boom

Posted By on Tue, Mar 18, 2014 at 3:19 PM

click to enlarge SEE ALL THAT EQUIPMENT? They tax it in Texas, but not in Arkansas. Funny thing. The drillers haven't fled Texas. - TEXAS TRIBUNE
  • Texas Tribune
  • SEE ALL THAT EQUIPMENT? They tax it in Texas, but not in Arkansas. Funny thing. The drillers haven't fled Texas.
Smart money says the Republican majority will override Gov. Mike Beebe's veto of a tax break on sand used in fracking for gas and oil. It's clearly an unconstitutional measure because it didn't get the two-thirds vote necessary to consider non-fiscal items in a budget session. But it's also bad policy and a sweetheart deal.

The veto nonetheless likely will be overriden for bad reasons. The shale gas exploration could die, Republicans  claim, if we don't preserve a $1.4 million tax break for Weatherford International, a Swiss-based multinational corporation with billions in revenue. 

You already know that the supposed increased severance tax produces a pittance, about $62 million a year. You know that new money isn't sufficient to keep up with road damage. You know that the state environmental regulators aren't adequately staffed to protect against the degradation of fracking and its waste. You know that fracking has increased earthquake activity. You know that promises of an enormous economic boom have fallen short. But, still, it should be allowed with as little recovery of the costs as possible, the Republican majority argues.

The cry is that any tax is too much tax on the delicate fracking industry. To which I say: Tell it to Texas. Texas is always cited as the exemplar by Arkansas Republicans. Why, there's no income tax in Texas. Of course there's not. In addition to a high property tax and a franchise tax that works like a corporate income tax, Texas gouges the bejeebers out of the energy industry, knowing the taxes will simply be passed along incrementally to consumers. It hasn't driven out drillers. Indeed, the energy industry, despite the sky-high tax rate, has sparked a huge economic boom in Texas.

A tax on sand? Hah! Texas puts its whole 6.25 percent state sales tax on ALL drilling equipment. It has done so for 50 years. Arkansas exempted equipment in 2008, but that's not enough. Now frackers want to exempt sand and other chemicals put down in the holes on the ground. A grain of sand is "equipment," they claim. It's an exemption, by the way, originally intended to lure manufacturers. You know, plants that set up machinery and employ permanent workforces. Not transient crews that punch a hole and move on. Once the gas is flowing, the economic activity drops dramatically.

Here's a Texas Tribune report on taxation of oil and gas in Texas. No sign they're pulling up stakes.

Severance taxes on oil and gas: $3.6 billion

Property taxes: $3.6 billion

Sales taxes: $2.5 billion.

Companies exploring for oil may buy heavy equipment to drill, and that means sales tax revenues for the state.

“Almost everything they buy is taxable,” LeBas said, citing as an example a diamond-tipped drill-bit that can go for $40,000.

In Arkansas, the ruling majority doesn't want to tax anything. And they think prosperity will rain on us if we don't. It sounds Texan, but it was an Arkansan who once famously remarked in the Capitol halls: "Don't piss on my leg and tell me it's raining."

It's simple. We already give drillers a far better deal than they get in states like Texas. But we're stupid enough   and needy enough to give away still more. Prosperity for Arkansas is just around the corner if we just give away enough of our seed corn. The call-and-response of the Land of Opportunity has ever been thus.


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