Tax Hike Bad for W.Va.
In 2007, West Virginia ranked dead last in per capita income in the United States. In the next five years, our per capita income grew by about $1,000 a year, shooting us past Mississippi, Idaho and South Carolina. It was an average annual rate of growth of 2.5 percent, second only to North Dakota.
Both states shared a common driver of that income growth: oil and gas exploration. It would be no exaggeration to say that the oil and natural gas industries have breathed new life into West Virginia’s economy. The facts are very clear.
Average hourly wages in West Virginia grew by 2.5 percent a year from 2008 to 2012, according to the 2014 “West Virginia Economic Outlook” report published by West Virginia University’s Bureau of Business and Economic Research. That growth was created overwhelmingly by oil and gas exploration. The average hourly wage in the “natural resources and mining sector,” home to the booming oil and gas industries and the struggling coal industry, was $27.82 per hour, which is 42 percent higher than the state average, the WVU report noted.
And that phenomenal growth rate is accelerating. From the first half of 2012 through the first half of 2013, wages in the natural resources and mining sector – driven by oil and gas exploration – experienced a huge 10.3 percent rate of growth, the WVU report showed.
Those oil and gas jobs are helping everyone. The West Virginians who have those good-paying jobs in the oil and gas industry and its support service industries are spending their money right here, making all of us better off. The state’s gross domestic product grew by 3.3 percent in 2012, significantly faster than the national average. “The mining sector has served as a particularly strong booster to topline growth in real state output, registering more than a 22 percent increase compared to 2011 and an 8.7 percent annual rate since 2008,” concluded the WVU report.
In the decade from 2002 to 2012, oil and gas exploration led the state in new jobs development, and the industry supports more than 30,000 direct and indirect West Virginia jobs today. Its contributions to the state economy exceed billions dollars annually.
This opportunity is not only oil and gas related jobs but is the foundation for revitalizing the chemical and plastics industry in the state.
Our ability to drill horizontally to unlock oil and natural gas from formations previously not economically produced is the goose that is laying the golden egg. But just as in that great Aesop fable, the desire to squeeze even more riches from the newfound source of wealth would prove disastrous.
Washington right now is proposing to make domestic energy exploration much more costly by raising taxes on it. If that happens, the golden eggs that have brought so much prosperity to West Virginia might not cease, but they will shrink, and the state’s economy will shrink with them.
Drilling for oil and gas is risky and very expensive. Contrary to popular belief, the vast majority of drilling is done by small, independent companies, not the giant corporations whose names we all recognize. Making it more expensive to find and extract new sources of energy would seriously hurt these companies and cause them to cut jobs and wages. The industry giants would react similarly, and exploration from all sources would decline.
The tax deductions being targeted for repeal in Washington are not reckless corporate giveaways, as they have been portrayed. They are the same kind of business investment deductions that are allowed for numerous industries. When energy companies take the huge risk of investing in new exploration, they can deduct some of those development expenses from their taxes, just as businesses in numerous other fields can deduct their research and development expenses.
Eliminating those deductions would significantly impair the cash flow of energy companies during those critical exploration and early development phases and make investments in energy exploration here in West Virginia more expensive. Have no doubt – that would slow investment in West Virginia’s most economically beneficial industry, which would create a negative ripple effect throughout the whole economy.
This is not some theoretical fight between oil and natural gas producers and average working-class families. This is about jobs, lower energy prices, and more abundant fuel for everyone. It is vitally important to understand that making energy exploration more expensive does not just hurt energy companies, it hurts everyone, and those most hurt are the working people who need those jobs and that economic opportunity the most.
Our delegation in Washington can best protect West Virginia’s new economic boom by preventing their colleagues from smothering it with job-destroying higher taxes.
Nicholas “Corky” DeMarco is executive director of the West Virginia Oil and Natural Gas Association.