More Severance Tax Needed

The price of everything-everything-has increased since 1957. Except the price of removing natural gas from beneath the ground in Arkansas. That’s still stuck at three-tenths of a cent per thousand cubic feet, a rate untouched by a half-century of inflation in the market price of gas and a laughable pittance compared with the rate paid by gas producers operating in neighboring states. 

Unfortunately for state government and the Arkansans served by it, the severance tax is one of those taxes that can be raised only by a three-quarters supermajority vote of both houses of the General Assembly, thanks to a short-sighted Depression-era amendment to the state constitution.

Good government types have long suggested reforming Arkansas’ severance tax rate, but it never mattered as much as it does right now. The sudden development of the Fayetteville Shale Play in north-central Arkansas makes it a matter of fairness and urgency.

In August, Gov. Mike Beebe finally got off the dime. He suggested that the gas companies come to the table with a reasonable proposal for paying more taxes or risk having one they might like much less imposed by an initiated act that he would champion.

Although the state has a recent history of being burned when government allows industries to write their own regulations, the governor’s proposal is a good start. The gas companies know that it is easy to buy a quarter of either house of the Legislature, especially when those elected representatives can justify themselves by saying they simply opposed a tax increase.

But direct democracy can be much less predictable. Just last year, Arkansas’ business community prodded the General Assembly to pass legislation increasing the minimum wage rather than risk having automatic increases every year under an initiated amendment that showed signs of having serious legs.

We’re certain that Gov. Beebe and the bright marketing minds of this state could come up with a message that would get an increase in the severance tax approved at the polls. A campaign that suggests sticking it to the energy companies that are sucking natural resources out of Arkansas, tearing up county roads and using hundreds of millions of gallons of the pristine water we’re so proud of sounds like an easy winner. And, as it happens, the severance tax is particularly hard to pass along to consumers.

Yes, gas producers would be well advised to cooperate on setting a 21st century tax on natural gas from the Natural State. 

We won’t presume to suggest the right amount for the severance tax. Arkansas does make up for some of the missing severance tax through other taxes, notably the corporate income tax that is completely absent in Texas. We do advocate a rate tied to the market price of gas, as Texas enjoys, rather than another flat rate on volume. We don’t want to end up in the same situation in 2057. .