Can Nick Miccarelli Cut the Gordian Knot?
By Keegan Gibson, Managing Editor
The Marcellus shale tax question is at least as complicated as the intractable knot of ancient lore.
How can Harrisburg lawmakers reconcile PA’s budget deficit with the fact that Governor Corbett has held fast to his pledge not to raise taxes? (Not to mention several polls have shown that most Pennsylvanians want some sort of tax or fee on Marcellus gas drilling).
The two-term State Rep (R-Delaware) and Iraqi combat veteran plans to introduce a new Marcellus severance tax proposal in the wake of Americans for Tax Reform (ATR) President Grover Norquist’s opposition to Senator Joe Scarnati’s impact fee proposal. Corbett took the ATR pledge not to raise taxes during his 2010 campaign, and has insisted he will keep it.
Corbett has not taken a position on the Scarnati impact fee, beyond reiterating his ATR pledge. He has said that he is awaiting a report – due July 22 – from his Marcellus Shale Commission before he will approve any related proposal.
Miccarelli’s proposal is simple: impose a severance tax and direct 100 percent of the revenue toward reducing the personal income tax (PIT). The ATR pledge permits tax increases in some sectors if they correspond with tax cuts in another.
Rather than pursue other tax and fee proposals that will face the Governor’s veto, Miccarelli argues, the legislature should pass the best bill they can get that Corbett will sign.
“Our job as a state legislature is to ensure that Pennsylvanians are properly compensated for the use of the state’s natural resources,” said Miccarelli. “We have an opportunity to create a mutually beneficial relationship between the natural gas industry and Pennsylvania residents.”
Miccarelli’s bill calls for a 3 percent severance tax on the extraction of natural gas in the first two years, which will then increase to 5 percent. Every penny of the revenue – an estimated $1.1 billion by 2015 – will be used to reduce the state’s portion of the personal income tax rate from 3.07 percent to 2.99 percent.
“We’re a commonwealth. we’re going to sink or swim together,” says Miccarelli. “This is an opportunity for every Pennsylvanian to get something out of a Pennsylvania resource.”
The catch? There would be no special allocation to environmental concerns or local impacts. The reduced state tax burden would conceivably allow local governments more leeway to raise revenue.
“I certainly understand where they’re coming from but we have to deal with the realities that are there. We have to propose a bill that actually has a chance of passing. And, as stated before, we have to deal with leadership, we have to deal with the governor, and that’s what this bill does- it puts something on the table that everyone can support,” says Miccarelli.
Most agree that something is better than nothing, but as usual in the Marcellus tax debate, the devil’s in the details.
“There are ways to do an offset, if needed, other than proposed by Rep. Miccarelli,” says Scarnati spokesman Drew Crompton. The Senator is holding fast to his impact fee proposal and appears willing to force the issue with Governor Corbett.
“Senator Scarnati believes that local governments should receive a majority of the money in order to address the local impacts of the drilling industry.”
“Nonetheless, Senator Scarnati is hopeful that this is a sign from the House that this issue should be dealt with in conjunction with the passage of the 2011-12 budget.”
“I don’t want to tax these guys just to have a tax. I believe that we should tax them in order to have money set aside for the environmental impact for what is a very heavy industry…so therefore, to get my support… any tax or fee would have to have some money for the locals, the locals communities in the areas that are impacted, some money for houses and sites clean up fund and some money for the united stewardship fund or growing greener.” said State Rep. Kate Harper (R-Montgomery).
Harper has played a big role in Marcellus debate. She introduced her own Marcellus tax bill this year, and said that a similar bill from PA Rep. Marguerite Quinn (R-Bucks) could set aside money for environmental concerns and also pass ATR muster. Harper echoed the concern about revenue distribution.
“I would not vote for Nick’s bill. It’s a lovely bill, I have a lot of respect for him and I like him a lot and I appreciate where he’s coming from but I didn’t get elected to make sure that Governor Corbett stays elected. That’s not my job – that’s his job.”
And that’s just Republicans. Democrats are loathe to give up the idea of general fund revenue from a shale tax – money they argue is necessary for environmental concerns, as well as mitigating in the cuts made by budgets proposed thus far by Republicans.
State Rep. Greg Vitali (D-Delaware) has emerged as a leader of the pro-severance tax contingent in the PA House.
“I think the rate is too low and I think the reality is that most of the gas is out of the well at the early years, so if you give them that early year discount you’re really leaving a lot of money on the table,” said Vitali.
“I think reducing the PIT is not a distribution that makes the most sense. I think restoring some of the budget to basic ed, higher ed, health care, funding the environmental stewardship fund…these are things that make more sense to me.”
Environmental advocates are critical of the very premise that Pennsylvania’s Marcellus shale policy should be influenced by the ATR pledge.
“It seems that the most compelling reason to support the Miccarelli proposal is that it would have the blessing of Grover Norquist, and the state officials who genuflect before him,” said Jeff Schmidt, Director of the Sierra Club’s Pennsylvania Chapter. He reiterated concerns that the bill lacks any mechanism to address the impacts of drilling on PA’s environment or infrastructure.
Jan Jarrett, the President and CEO of PennFuture, said she hadn’t fully reviewed the proposal but was skeptical.
“Instead of trying to satisfy the demands of Grover Norquist, a Washington, DC based anti-government activist, our policy makers should be trying to craft something that fairly compensates Pennsylvania taxpayers for the costs of drilling and directs the funding to offsetting those costs,” Jarrett wrote in an email.
“While the reduction in the PIT would be welcome, most Pennsylvania taxpayers would hardly notice the difference – someone paying $50,000 pays $1535 in income tax now – at 2.99% that taxpayer would pay $1495 a yearly savings of $40 a year.”
At this point in the debate, before the first votes are counted and before Corbett shows whether he is willing to use his veto pen, it’s difficult to tell where a compromise like Miccarelli’s stands.
The knot may need to get even more tangled before all sides are worn out enough to settle for a compromise.