More Mining, Says The Washington Post

An interesting editorial from The Washington Post, noting that oil, gas, and mining are all bright spots in this dim economy:

THE DEBATE ABOUT managing the natural resources on America’s vast tracts of federal land usually begins with oil and natural gas, and it often ends there, too. A Government Accountability Office (GAO) study out this month shows a big reason why: That’s where the money is.

The GAO reports that extraction firms brought $98.6 billion of oil, gas, coal and other resources to market in 2011 and paid $11.4 billion in lease and royalty payments into federal coffers. That is a small amount relative to the whole federal budget. But it is not trivial, as evidenced by coastal states that for years have fought to obtain a big cut of offshore drilling royalty revenue, even though the territory and those who regulate it are both federal. The GAO notes that oil and gas royalties are “one of the largest non-tax sources of revenue to the federal government.” These figures, in turn, represent an industry that helps sate the nation’s ravenous demand for energy and improve its trade deficit. For all of these reasons, economically viable and environmentally sensitive oil and gas drilling should be encouraged.

On that score, the Obama administration has a mixed record. New rules on the controversial method of natural gas extraction known as “fracking” neither give drilling companies a free hand nor shut down the industry. That’s good. But large sections of the Outer Continental Shelf, such as that off the coast of Virginia, remain off-limits to oil and gas drilling.

The Post goes on to note that it believes there could be similar revenue from mining claims, if mining were subject to paying royalties similar to the oil and natural gas industry. The Post gets it wrong, however, when it insists that almost no taxes or royalties are paid by companies that produce natural resources on federal lands. A quick look at the National Council for State Legislatures shows that there are hundreds of different severence taxes for production on federal lands, but that the revenue goes to the states where the land is located rather than the federal government:

Severance taxes are excise taxes on natural resources “severed” from the earth. They are measured by the quantity or value of the resource removed or produced. In the majority of states, the taxes are applied to specific industries such as coal or iron mining and natural gas or oil production. They are usually payable by the severer or producer, although in a few states payment is made by the first purchaser. The taxes usually are imposed at a flat rate per unit of measure, with coal and ore mining taxes levied on a tonnage basis, oil production taxes on a per barrel basis, and gas production taxes on a per foot basis, although the rates may be graduated based on volume of production or value of the products. “Value” may mean market value in some states and gross value in others. Taxable net value or net proceeds are determined by deducting certain items from the gross value or gross proceeds. Examples of deductions include production costs, ad valorem taxes and royalties paid. Evaporation for gas wells also might qualify as a deduction.

I don’t see any reason why it is imperative for this revenue to go to the federal government rather than the state government.

Regardless, it’s nice to see The Washington Post argue that more mining and resource production is in the economy’s best interest. With Lisa Jackson leaving the EPA, perhaps the next administrator will be more sympathetic to natural resource production.


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