Balancing Budgets By Raising Depletion Taxes

Balancing Budgets By Raising Depletion Taxes

Minneapolis, Minn.— (June 4, 2008). A new report by the Institute for Local Self-Reliance (ILSR) concludes states could generate hundreds of millions, in some cases billions, of dollars in additional revenue each year by implementing or adjusting depletion tax policies.

Thirty-eight states impose depletion or severance taxes on the removal of oil, natural gas, coal, precious metals, and other non-renewable resources. Justin Dahlheimer, the report’s author and research associate for ILSR, calls for state legislatures to add, update, or adjust state depletion tax policies. “At the same time that state budgets are experiencing significant shortfalls because of the economic slowdown and the rapid decline in housing prices, energy and commodity prices are soaring,” says Dahlheimer. “It is a perfect confluence of need and opportunity.”

“Soaringmineral and energy prices have been accompanied by a technological revolution which allows for much greater extraction than was previously thought possible,” notes Dahlheimer. ” It is up to state governments to maximize the public benefit of the natural resources while they still exist.”

The report illustrates how current depletion tax policies, in many cases, fail to account for the full value of the natural resources, depriving state and local governments of additional revenue that could be useful in current and future fiscal years. In other cases, states do not have depletion tax policies in place, while billions of dollars in natural resources are removed from their lands.

Theseadditional revenues could rival existing budgets.  For example, if North Dakota imposed a severance tax similar that of Montana, it would generate enough additional annual revenue to nearly replace all other taxes the state collects.

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David Morris
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David Morris

David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.