The Politics of State Energy Severance Taxes in the Shale Era

26 Pages Posted: 14 Aug 2014

See all articles by Barry G. Rabe

Barry G. Rabe

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy

Rachel Hampton

University of Michigan Law School - JD Candidate Author

Date Written: 2014

Abstract

States that produce gas and oil have long levied severance taxes at the point of extraction, commonly placing most revenues into general funds. States are normally thought to be averse to imposing significant energy taxes due to consumer sensitivity to increased prices, but severance taxes may differ since much of the ultimate cost is exported out-of-state. These taxes have taken on new meaning in many states amid the dramatic expansion of gas and oil production accompanying the development of hydraulic fracturing and horizontal drilling techniques. We reviewed all major statutes and constitutional amendments related to severance taxes that were enacted at the state level during the first decade of the “shale era” (2004-2014). We find that there have been only modest adjustments in tax rates and some evidence that states have attempted to reduce rates, possibly in response to growing national production. In turn, there is also evidence that states have begun to pursue more targeted strategies for revenue use, including some expanded focus on responding to the negative externalities linked to this highly-decentralized form of drilling, expanded revenue sharing with localities, and increased long-term protection of resources through state trust funds.

Keywords: federalism, intergovernmental relations, hydraulic fracturing, fracking, severance taxes, energy taxes, oil and gas taxes, state energy policy, state environmental paper, shale oil, shale gas, negative externalities

JEL Classification: H20, H23, H29, H70, H71, H72, Q33, Q38, Q48, K32, K34, L71

Suggested Citation

Rabe, Barry G. and Hampton, Rachel, The Politics of State Energy Severance Taxes in the Shale Era (2014). APSA 2014 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2452848

Barry G. Rabe (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States
734.615.9596 (Phone)

Rachel Hampton

University of Michigan Law School - JD Candidate Author ( email )

Ann Arbor, MI
United States

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