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Time is right for Oklahoma policymakers to discuss merits of drilling tax credit

by The Oklahoman Editorial Board Modified: July 12, 2013 at 8:40 am •  Published: July 12, 2013

WHEN a Democratic legislator accused Republicans of wanting to sell surplus water to Texas to offset the cost of income tax cuts, he was clearly out of his intellectual depth.

Treatment of another liquid found at a greater depth than groundwater really could offset income tax cuts. It involves tax credits and rebates for horizontal oil and gas drilling. They’re reducing gross production tax receipts to meager levels.

State Secretary of Finance Preston Doerflinger is among officials who question the continued need for the credit. A conservative view is that upping the take from gross production taxes could help average citizens pay lower income taxes. The Oklahoma Policy Institute, a longtime foe of the credit, would rather the money go to state services than to tax cuts.

Regardless of where it goes, the time is right to discuss ending a well-intentioned but perhaps anachronistic tax credit. Doerflinger isn’t pushing elimination of the credits so much as he is urging a serious discussion of the matter.

Steep declines in gross production tax collections dampened an otherwise positive revenue picture for the fiscal year that ended June 30. General revenue was boosted by a nearly $250 million gain in income tax and sales tax collections. Receipts from gross production taxes, however, fell by nearly 50 percent.

The Oklahoma economic miracle hasn’t come to a screeching halt, but it has slowed. Higher unemployment and lower income tax and sales tax collections late in the fiscal year are signs of slower growth. Doerflinger said it’s increasingly unlikely the state can make a deposit in the Rainy Day Fund this summer.

Oklahoma Tax Commission figures show that rebates, refunds and tax credits linked to oil and gas exploration cost the state $321 million in fiscal 2013. The tax rate on horizontal wells is just 1 percent for 48 months after the start of production. This 1 percent is paid to counties and schools; the state general revenue fund gets nothing.

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by The Oklahoman Editorial Board
The Oklahoman Editorial Board consists of Gary Pierson, President and CEO of The Oklahoma Publishing Company; Christopher P. Reen, president and publisher of The Oklahoman; Kelly Dyer Fry, editor and vice president of news; Christy Gaylord...
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