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Ohio wants its slice of fracking’s oil wealth

Scott Tong Oct 29, 2014

The American fossil-fuel boom has spawned debates on what to do with this wealth. Ohio finds itself in the middle of one right now. The state’s Republican governor, John Kasich, is proposing to raise oil and gas taxes, to ensure the riches don’t all go to workers and companies based out of state.

“His view is, this is some sort of a rip-off,” says Ohio State economist Mark Partridge. “That these energy resources are transported out of the state of Ohio, used and refined in other places. And all the profit and wealth goes to these other places and it leaves Ohio.”

By most measures, Ohio’s taxes on energy production are low. They’re less than 1 percent, compared to 7 percent in Texas, 11 percent in Wyoming, and 25 percent in Alaska.

Kasich wants to raise state taxes to 2.75 percent or even higher. Drilling companies threaten to leave and go to low-tax states. But that hasn’t happened historically. A study by Headwaters Economics notes “the academic literature generally disagrees that tax competition is important to oil production.”

“The decisions on where to drill are not going to be determined by comparing different states,” says Michael Levi of the Council on Foreign Relations and author of “The Power Surge: Energy, Opportunity, and the Battle for America’s Future.” “They’re going to be determined on a location-by-location basis, on whether a profit can be made.”

Governments that tax oil and gas taxes use the money in different ways. Some, like Norway, store it away for future generations in sovereign wealth funds. Other spend it on roads damaged by drilling, or invest in education.

Governor Kasich of Ohio wants to cut taxes, which spreads the energy wealth. But Mark Haggerty at Headwaters Economics worries that makes the state budget more dependent on taxes from fossil fuels – a boom and bust sector.

“In fact, what you’re doing is actually creating a less stable tax base for the state going forward into the future,” Haggerty says.

And the future is the whole question: how to take today’s riches and plant them in the right place.

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