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Income tax plan

July 25, 2012

Former state Agriculture Director Fred Dailey

A former state official recently returned to the political limelight to support a new tax initiative proposed by the current governor.

Former state Agriculture Director Fred Dailey favors Gov. John Kasich’s plan to raise taxes on natural gas and oil production in the state to offset  the effects on the state budget by his proposal to reduce and eliminate the state’s income tax. The proposed tax on natural gas and oil production would only affect large producing wells.

“The governor believes the taxes in Ohio should be low and fair and what we are seeing is we have a very high income tax in Ohio, which is a variable rate that can go as high as 6 percent,” Dailey told the Wapakoneta Daily News during a recent telephone interview. “We have a severance tax law for gas and oil and natural gas liquids which begs to be modernized.”

With the development of fracking and better drilling methods which permits the extraction of oil from shale, Ohio is experiencing

a boom in oil production throughout the eastern half of the state. The taxes on those commodities is 40 years old and needs updated, he said.

Dailey agrees with Kasich that charging a flat fee of 20 cents per barrel of oil, which can cost as much as $100 per barrel “is pitifully low.” The natural gas tax is 3 cents per 1,000-cubic feet, while there is no tax on valuable gas liquids such as propane and benzene.

“The governor would like to modernize that and at the same time he is trying to be very sensitive to the small oil and gas well producers,” said Dailey, who noted the bill would impact him since he has wells on his property and leases them to some of the country’s large oil producers. “Essentially the proposal would for the small conventional wells, which are not the high output wells and which comprise 90 percent of the wells in Ohio, then the tax structure would remain the same.”

Dailey explained for the high volume horizontal wells, the tax would go from 20 cents per barrel up to 4 percent — starting at 1.5 percent of the cost per barrel the first year and rise incrementally up to 4 percent each year for the next couple of years. On natural gas the tax would go to 1 percent, “which in today’s market would actually be a cut in the tax.”

The tax on natural gas liquids would mirror oil and start at 1.5 percent per barrel and rise to 4 percent.

“Even though this is a significant increase, this is still well below the major oil and gas producing states — including where many of the out-of-state drillings are coming such as Louisiana, Oklahoma and Texas are coming to drill in Ohio,” Dailey said. “We are still trying to make it very competitive because we don’t want to price ourselves out of the business and we feel this is still very fair.”

The proceeds from the severance tax would be used to reduce the state income tax. Dailey said Kasich’s advisers predict the severance tax would raise approximately $500,000 per year, which would be used to reduce the state’s income tax burden.

“Through this proposal, it would not matter if you lived in the eastern half of the state or the western half of the state you would see a reduction in the income tax,” Dailey said. “I am a fiscal conservative — I believe state government is too big, spends too much and taxes too often — if this money was utilized to grow government then I wouldn’t be supporting it.

“I think the governor is spot on by using it to reduce the income tax and making Ohio a more competitive place to do business,” he said. “It also puts a half-million dollars of disposable income into the hands of consumers.”

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