Analysis: Kasich hints at meaningless income tax cut

Readers of the Dispatch learned this morning that Governor Kasich, as part of his plan to revisit the budget, may seek to increase taxes on oil & gas drillers (aka “frackers”) and use the revenue to cut the state’s income tax.

We wanted to know how much you could reasonably expect to lower income taxes solely by increasing taxes on oil & gas. Unfortunately, the Dispatch must have let the guys with the calculators go home early. So we did the math, and here’s how the numbers work out:

According to a report by Innovation Ohio , if Ohio raised its natural gas severance tax from 0.66% to 7.5% (the Texas tax rate), it could collect $2.5 billion in revenue over 10 years, or $250 million/year, on average. It should be noted that this calcualtion was based on a market price for natural gas that has been declining precipitously and will likely only go down further with an increase in production.

The amount of tax Ohio could collect on oil from fracking is much less clear. Ohio’s Department of Natural Resources puts the amount trapped in Ohio’s shale between 1.3 and 5.5 billion barrels, with a market value of $130 to $550 billion. No industry forecasts are available for how much of that could ever be recovered, or how long it would take. Let’s be extremely generous and assume the midrange ODNR number, that half the oil is recoverable and that it will take 20 years. That could mean annual tax collections on oil (at the Texas rate of 4.9%) of up to $416 million.

Taken together, if all the optimistic forecasts prove true, if gas prices improbably rebound, and if Ohio actually raises taxes on Big Oil almost 10-fold, the state could hypothetically see tax revenue of $666 million per year. Even if Kasich sets aside nothing for increased regulation & oversight, instead plowing it all into a tax cut, he could cut the income tax – currently bringing in $8.288 billion – by no more than 8%.

What does that mean for the average Ohioan?

A taxpayer earning the median income of $47,358 pays $1,346 in state income tax, based on tax brackets and rates published by the Tax Department. An 8% tax cut would be equivalent to $108 per year, or $2.08 per week.

Two dollars a week is unlikely to be noticed by anyone. In fact, we have to wonder whether the Governor had his people run the numbers at all. Now that we’ve shown just how much politicians would have to raise taxes on Big Oil (a huge source of campaign cash) in order to meaningfully cut the income tax, we wonder if they will walk away from this proposal before it ever sees the light of day.

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