Tax Proposal Shortsighted (Editorial)

Some government services so benefit all of society that anyone of adequate means should pay taxes in order to provide them. Others are more properly paid for through user fees.

Then there is the severance tax, which is a tax only on those people and corporations lucky enough to own valuable minerals that are extracted.

For  half a century, Arkansas barely acknowledged the value of natural gas extracted from conventional deposits primarily in the Arkoma Basin. The severance tax on gas, a minuscule three-tenths of a cent per thousand cubic feet, was the third rail of Arkansas politics.

But the explosion, almost literally, of shale gas exploration and production that characterized the last half of the last decade reminded Arkansans that there is a societal price to be paid for removing minerals. The damage done to roads, the ones general taxpayers had already paid to build and maintain, in the Fayetteville Shale Play was the first and most obvious sign, but the Oil & Gas Commission and the Department of Environmental Quality also have a lot more work to do.

In 2008, Gov. Mike Beebe touched the third rail and lived to tell about it. He brokered an enormous increase in the severance tax, from something that was effectively a fraction of a percent to a rate that tops out at 5 percent and includes many exemptions. It has dramatically increased revenue, but not nearly as much as projected because the tax is now tied to the value of the gas, which is less than a third the price predicted just four years ago.

Little Rock attorney and former gas utility executive Sheffield Nelson is pushing for an initiated act that would impose a flat, no-exceptions rate of 7 percent. It would undoubtedly raise many additional millions of dollars, and the money would come only from gas companies and royalty owners. But it would also bump the effective rate up above that of neighboring gas-producing states.

Most importantly, it seems short-sighted to raise taxes on an important industry whose product is becoming less profitable by the month.