"Lawmaker Could Fix His State’s Budget Shortfall Twice With The Tax Breaks He Wants To Give Big Oil"
Oklahoma House Speaker T.W. Shannon (R) is expected to announce his candidacy this week to replace Senator Tom Coburn (R), making him the newest entrant in the race against oil industry-favorite Rep. James Lankford. Shannon is working to give the oil and gas industry a permanent tax break that would cost Oklahoma billions of dollars in the long run.
According to the Oklahoma Policy Institute, oil and gas companies will shave off $250 million from their state taxes this year, and expect another $300 million the next. The total is already worth nearly twice as much as the state’s budget deficit.
Given that more than 80 percent of new wells use this technique, the cost to Oklahoma will only grow in 2014 and 2015 to more than $300 million. To meet that shortfall, state programs inevitably bear cuts that would only deepen if Oklahoma follows through on proposed tax cuts for the wealthy.
Dating back to the 1990s, the tax break cuts the gross production tax of a well from 7 percent to 1 percent for the first few years. It is set to expire in 2015; however, Shannon has proposed extending a $175 million benefit permanently. Another House bill would extend it by a couple years, and yet another bill in the Senate would create a new rate — at 4.95 percent. Oklahoma’s benefit stands out among states where the drilling technique has exploded, like Texas and North Dakota, where the tax ranges between 7 and 11 percent.
Oil and gas extraction does not come without risk, from potent methane emissions to risking the quality of water. In recent years, Oklahoma has seen an elevenfold jump in quakes, and increasing evidence links these quakes to both conventional oil production and hydraulic fracturing.
Propelled by government tax breaks and investments, oil and gas production — specifically horizontal drilling — has boomed. Alaska, too, recently cut the industry’s production taxes by half, costing the state $2 billion for the industry’s extra windfall. As a state that takes 90 percent of its revenue from oil taxes, and has no personal income tax, the decision does not come without a tradeoff.
At the federal level, the five top oil companies receive another $4 billion in tax breaks annually. Senate Republicans have repeatedly voted to preserve these tax breaks, putting the candidates for Oklahoma’s seat in good company.