Leader Blues

Tuesday, November 28, 2006

EDITORIALS>>Achieving fairer taxes

It may seem beggarly or simply perverse to suggest new taxes when the state is building a surplus that will approach $1 billion by the end of this fiscal year. But there are good and provident reasons to do it.

We are talking about the old state severance tax on natural gas. The tax is a mere three-tenths of a penny for each 1,000 cubic feet of gas extracted from Arkansas soil, the lowest by far of any state. It is nothing more than a nuisance to the exploration companies. If it were repealed altogether, public services would not feel the loss. But other states rich with energy minerals — Texas, Oklahoma, Wyoming, Alaska, Louisiana — impose a real tax on the vanishing hydrocarbons taken from the earth. The taxes are typically based on the value of the gas or petroleum at the wellhead, and they range from 4 to 7 percent of the wellhead value, as a rule. That amounts to a tax that is hundreds of times the Arkansas tax.

Arkansas’ historical failure to compensate the public domain for the permanent loss of finite and rapidly vanishing natural resources was brought to mind again by the accounts of the torrid exploration for gas in the Fayetteville Shale, the last big unexploited formation of natural gas in Arkansas.

The formation runs across a wide swath of north-central and eastern Arkansas, much of it in our circulation area. Southwestern Energy Co., the first wildcatter in the region, already has drilled 128 wells and will shortly be pumping 100 million cubic feet a day. Other companies are not far behind.

The Fayetteville Shale production will have a significant economic impact on the state, but the severance taxes flowing into the state treasury from the vast production will be nearly invisible. Texas would be building a new university with it.
Arkansas at the moment does not need the extra revenues, at least not to pay for the level of services that people are demanding. But a significant severance tax on gas would allow the state to achieve something else that it badly needs: fairer taxes.

The governor-elect is talking about gradually phasing out the state sales tax on groceries, as the state can afford it. A real tax on the severed natural gas, paid by the production companies and passed on to distribution companies across the region, would allow the state to roll back a sales tax that lands harshly on low-income people without jeopardizing vital services like education and health care.

There is a sound and almost moral imperative for severance taxes of all kinds. The minerals and other natural resources with which God blessed humanity belong in considerable measure to all of us and to posterity, not simply to those who have title to the surface land or the companies that acquire the mineral rights.

Those who make a profit from the exploitation of the resources and the generation that consumes them owe something to the public domain and to future generations that will be bereft of the resources. In 1947, when the big natural gas activity started, the exploration companies persuaded the legislature that three-twentieths of 1 percent per thousand cubic feet was enough to satisfy posterity.

Ten years later, when Gov. Orval Faubus needed money to pay for his education program, they relented and let the legislature raise it to three-tenths for every one-tenth of a penny per thousand to go along with a big sales tax increase.
Conscience should tell us that is not enough. Let’s raise it to the rate imposed by, say, our conservative brothers in Texas — 7.5 percent of the market value of the gas at the wellhead — and then reduce taxes that are really onerous on working people.

It would not deter one company from drilling one well, and we will be a fairer and more humane society.