A shorter version of this article was submitted to the Oklahoman as a letter to the editor. The version below was originally submitted as an op-ed, which The Oklahoman declined to publish.
A recent Oklahoman editorial takes issue with a report by Oklahoma Policy Institute on why Oklahoma’s tax breaks for horizontal drilling have become unnecessary and unaffordable. The Oklahoman editorial wrongly paints OK Policy with positions it has never taken, and it does not present a single argument to refute OK Policy’s criticism of these credits.
First, the Oklahoman argues that the near total collapse of General Fund contributions from gross production taxes is not significant, because the first $150 million of gross production tax revenue is dedicated to other funds. The data disputes the Oklahoman’s view: since 2001 the gross production tax has contributed an average of $194 million to the General Fund through November, and prior to this year it had never brought in less than $94 million. But this fiscal year, gross production taxes have collected only $7 million for the General Fund.
As State Treasurer Ken Miller pointed out in the most recent Oklahoma Economic Report, gross production tax receipts have fallen far below the previous year, even before taking into account the dedicated funds mentioned by the Oklahoman.
Next, the Oklahoman editorial attempts to change the subject to the irrelevant issues of Solyndra and renewable energy tax credits, federal initiatives which have absolutely nothing to do with Oklahoma’s oil and gas tax credits and nothing to do with any position that Oklahoma Policy Institute has ever taken.
OK Policy’s argument is simple: tax exemptions created to encourage what were once novel and risky methods of drilling have become unnecessary and counterproductive now that these techniques are standard practice. The Oklahoman editorial stated, “Oklahoma lawmakers determined years ago that staying competitive with Texas meant creating a modest tax credit for risky drilling.” But today, this type of drilling is no longer risky, and the tax credit is no longer modest. Ninety percent of the rigs operating in Oklahoma are engaged in horizontal drilling.
In Oklahoma, horizontal wells are exempt from state taxes for 48 months, even after project payback. Even Texas doesn’t provide that generous and unlimited a tax break. The cost of Oklahoma’s tax credit, already over one hundred million dollars annually, continues to grow.
The oil and gas industry certainly contributes much to Oklahoma’s economy. It is also very politically influential. That shouldn’t be a reason to hand out tax credits long past their usefulness, at the expense of all Oklahoma taxpayers. One of the few bipartisan agreements in the ongoing budget debates in Washington is that all tax loopholes should be on the table and tested against current realities. This is what OK Policy seeks for Oklahoma.
Oklahoma Policy Institute stands for fiscal responsibility, expanded economic opportunity, and the fair and efficient delivery of core government services. For all these principles, it’s time to curb this tax giveaway.