Monday, January 6, 2014

Consumers, not companies pay TAXES!

Weekly Opinion Editorial
by Steve Fair

     It goes without saying that Oklahoma as a state is very dependent on the energy sector.  The oil and gas business provides thousands of jobs across the state.  There is a great deal of drilling and exploration in Oklahoma.  Part of the reason is because the state legislature lowered the tax on horizontal drilling to one percent from seven percent to encourage more drilling in the state.  The reduction is set to expire in July 2015. 
     Oklahoma State Speaker of the House T.W. Shannon, (R-Lawton) has announced that he will introduce legislation in the upcoming session to make the one percent tax permanent in order to continue to encourage drilling.
     "Some have suggested we should raise this tax or allow it to expire in order to bring more money in to the general fund and grow government," said Speaker Shannon. "But I don't believe in the tax more, spend more approach. The current tax rate on horizontal drilling has been doing exactly what it was designed to do: encourage more drilling in Oklahoma. Therefore, I believe we should make this rate permanent and send the message that Oklahoma is a place that welcomes the oil and gas industry, along with the jobs and economic development they bring to our great state."
     Four things to consider:
     First, Oklahoma state government is dependent on the energy sector.  More than ten percent of the revenue Oklahoma state government receives comes from the oil/gas sector.  Last year, that amount was nearly 800 million dollars.  Oil and gas, as an industry, contributes more than its fair share to Oklahoma government already.  Taxing an industry just because it’s a great source of revenue is short term thinking.  Capital is a coward and will go where the business environment is more friendly. Those who think companies will merely pay the tax and more on are foolish.
     Second, oil and gas companies don’t pay production taxes; consumers pay taxes.  As Steve Forbes often tells his audiences, taxes are a cost, just as paper and laptops are. That means he just passes those costs on to whoever is buying his product.  The oil and gas industry just consider taxes a cost of doing business.  When government taxes the company, they just take a price increase and the consumer ends up paying more for goods and services.  Those who oppose tax cuts either don’t understand simple economics or believe that ‘redistribution’ of wealth leads to economic prosperity.  Government can give you no more than they can take away from you, minus a large handling fee.
     Third, by its nature, government grows.  Government never stops growing.  The more revenue that comes in, the more government spends,  Thankfully, the Oklahoma state legislature has to ‘balance’ the budget, meaning they can’t spend more than they take in, but consider that Oklahoma government’s budget has grown from 6.6 billion in 2011 to an expected 7.1 billion in 2014-that is under Republican control.  While core services can’t be skimped on, you can bet there is plenty of waste in Oklahoma government.
     Fourth, we need to find the waste in Oklahoma government.  We do that by empowering and funding the State Auditor’s office.  Give the Auditor’s office the manpower to find the waste.  We know it’s there, but we seem reluctant to actually try to locate it.  Oklahoma government should go to a zero-based budget process; where an agency must justify EVERY dime in their budget and not just copy and paste last year’s budget. 
     Shannon’s proposal is a solid one and the lower tax rate should be made permanent to encourage drilling and exploration in Oklahoma, but even more important is stopping the growth of Oklahoma state government. Unfortunately that will have to be done by stopping the revenue stream to government.

1 comment:

Larry Brock said...

Sorry I must disagree, the majority of oil producers in Stephens, Jefferson, Cotton and Comanche counties do not produce from horizontal or deep wells. Most are small operators that live and spend money in the local economy. They have no way to pass the cost of the 7% tax on to the consumer. They must sell to the posted price, It's not like a grocery store Mr. Fair. A far better solution would be to let the 1% tax expire and reset the tax for all productions to say 3 or 4 %, the small producers would get a break, the big producers will pay a little more, the state will still get revenue. And Mr. Shannon will still get the attention he craves.