Frackers Fight For Tax Breaks

Image of an oil gusher

The Oklahoman editorial page has responded to coordinated efforts to end some tax breaks for the oil and gas industry, and, as usual, its argument is filled with omissions and distortions.

Before I comment on the specific editorial, let’s be clear that oil and gas companies will drill for fossil fuels wherever they can be found as long as it's profitable. Fossil fuels will remain profitable for the foreseeable future. Increasing gross production taxes by a few percentage points will likely do nothing to inhibit drilling.

The editorial, “Class warfare-laden campaign mars Oklahoma drilling tax debate,” published Sunday, argues for continued tax breaks related to drilling for the oil and gas industry here and makes the overall claim that those who oppose that idea are making false emotional arguments that don’t go “deep” enough into the debate.

Right now, oil and gas companies pay 1 percent in gross production taxes for horizontally drilled wells—wells drilled using the hydraulic fracturing or fracking process—for four years and then 7 percent after that. The tax break was implemented to encourage new drilling here and is set to expire in 2015. Oklahoma is experiencing a mini-boom in the oil and gas patch so it only seems sensible to allow the tax break to expire. North Dakota has an 11.5 percent gross production tax, for example.

But for The Oklahoman the tax break, implemented in 2010, if not continued, could turn into a 700 percent tax increase for “some wells.” (Talk about distorting the facts to make a point. Where does that number even come from?) I’m unsure how the math works for the newspaper in this particular line of the argument, but I do know that the tax break was given to spur new drilling, and now it’s no longer needed. When a tax break expires, that’s just what happens. It doesn’t mean taxes are increasing. It just means they are reverting to the older level of taxation.

The editorial was critical of television advertisements opposing the tax breaks, which are sponsored by togetheroklahoma.org. The editorial claims in breathless rhetoric, as if it’s some major discovery, that the organization has “links to Oklahoma’s biggest tax consumers, including the public education establishment.” Note the term “tax consumers.” That’s how the newspaper views teachers. What is that supposed to prove?

The ads, according to the newspaper, are a “crude campaign” depicting “fat cats” in the oil and gas industry as villains. “It’s a low-budget attempt to influence a high-budget debate,” the editorial sniffs. I’m not going to defend or not defend the stylistics of any political advertisement, but I do know for me, anyway, the ads aren’t as crude as U.S. Rep. James Lankford’s Bible-thumping sanctimonious television advertisements criticizing President Barack Obama. It’s television, after all, not an academic study issued by a team of experts.

Local oil executives, including billionaire Harold Hamm of Continental Resources, Inc., have floated a plan to permanently tax all wells, horizontal or vertical, at 2 percent for the first four years and then 7 percent after that. The editorial, of course, supports that plan because it’s only fair we allow oil and gas companies to set their own taxation level, right? How much do you guys want to pay in taxes this year? A spokesperson for Gov. Mary Fallin has said she is “inclined” to support the proposal.

Of course, the editorial doesn’t even mention the environmental impact of fracking, which critics have tied to earthquakes and water contamination across the country. Why give tax breaks in the first place to companies that do so much harm to the planet? I recognize our planet’s dependency on fossil fuels right now, but an enlightened citizenry would reserve tax breaks only for the development of renewable energy sources. There will come a time when the oil and gas era will be just blip in the planet’s history if humans can survive the impact of global warming fueled by manmade carbon emissions.

The editorial’s only real argument, which it doesn’t prove or quantify, is that oil and gas companies might not drill as much here if the tax break is allowed to expire, resulting in an overall drop in tax collections from the industry. But even a proven oilman such as Tulsa’s George Kaiser refutes that logic. The gross production tax “doesn't move the needle in the decision to drill,” he claims. Besides, the tax rate could be adjusted in later years.

The Oklahoman, of course, is owned by Colorado billionaire and conservative Philip Anschutz, who made his money in the drilling business so the newspaper’s position on the tax break is highly predictable. Still, the editorial’s argument is lame. The state has a budget shortfall of $188 million, and some agencies are facing cuts. Meanwhile, local oil and gas companies are reporting huge earning increases.