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How should states tax the new fossil-fuel boom?

Nov 12, 2014

Credit World Resources Institute

Are cash-starved state legislatures taxing the energy industry as much as they could? 

Barry Rabe is director of the University of Michigan's Center for Local, State and Urban Policy. He's one of the co-authors of a new report that tracks how states are taxing thousands of new oil and gas wells.

Rabe says so-called severance taxes arose from the question, ‘What happens when you take a non-renewable natural resource and remove it for some kind of use?’

He says it's an issue some states are facing for the first time, including North Dakota, which is booming because of oil. Rabe notes that 65% of North Dakota’s budget will come from energy taxes.

Rabe says the big issue is what to do with the new revenues, although in Michigan only half of 1% of Michigan’s budget comes from the state’s version of severance taxes.

North Dakota has created a trust fund, where a portion of the money made through fossil fuel extraction is put away where lawmakers can’t touch it for a set number of years. Rabe says many states making a large portion of their revenue through fuel resources face an inevitable bust, so a trust fund can serve as an insurance policy for when that day comes. But not all lawmakers want to wait – they want the money now.

*Hear the full interview above.