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As states vie for businesses, taxes and incentives matter

by The Oklahoman Editorial Board Published: December 20, 2013

AT the request of Boeing Co., more than a dozen states are reportedly in a bidding war for the chance to build 777X jets. The project could involve $10 billion in new facilities and up to 8,500 jobs. To reap that economic activity, policymakers across the country are eagerly embarking on an incentives arms race.

Washington state, where Boeing has a large presence, has offered $8.7 billion in incentives over 16 years — apparently the largest such package in U.S. history. Missouri will offer $150 million annually. Other states are keeping their offers secret. It's not known if Oklahoma is among them.

This may be nothing but a ploy by Boeing to force union concessions, or an effort to see if Washington state officials will pony up even more. Even so, officials in numerous states are taking the company's request seriously. The potential economic impact is too significant to ignore.

Oklahoma is involved in a similar incentives race, for oil and gas drilling. That may surprise some, but it's true: Oklahoma, in the heart of oil country, still has to compete for energy jobs.

As with the proposed Boeing incentives, some question whether Oklahoma's oil and gas incentives are cost effective. Do these jobs come to Oklahoma because of incentives, or would they be created regardless because of market forces? The state's tax break for horizontal drilling, in particular, has become a source of debate.

The tax rate on horizontal wells is 1 percent for 48 months after the start of production (it would normally be 7 percent). Once considered novel and risky, horizontal drilling is now the norm. Critics note that North Dakota imposes an 11.5 percent tax on horizontal drilling, yet has still experienced a major energy boom.

Earlier this year, state Finance Secretary Preston Doerflinger suggested horizontal drilling tax breaks could be adjusted, prompting strong reaction from many energy leaders. So far, there appears to be little legislative support for changing the incentive. At a recent forum hosted by The State Chamber, House Speaker T.W. Shannon flatly declared the drilling incentive program “is working” and “doing exactly what we expected it to do.” Shannon, R-Lawton, noted Pennsylvania has chosen to “completely eliminate” the tax on horizontal drilling.

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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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