State Chamber provides new analysis on oil, gas industry's impact on Oklahoma's economy and tax revenues
You can’t judge the oil and gas industry’s impact on Oklahoma’s economy and state government revenues using just gross production tax and employment numbers alone.
Backers of both the industry and Oklahoma State Chamber officials said Thursday they hope a study they released this week by the State Chamber Research Foundation that looks at the impact of oil and gas’ latest slowdown drives that point home.
“This report highlights the impact depressed oil and natural gas prices have on state government,” said Chad Warmington, president of the Oklahoma Independent Petroleum Association — Oklahoma Oil and Gas Association on Thursday.
“The study offers further proof that overall state tax revenue is highly sensitive to changes in oil and natural gas industry activity because the industry has a significant impact in nearly every tax stream collected by the state. That sensitivity has only been heightened following repeated tax increases on our industry in recent years that have made state government even more dependent on tax receipts from oil and natural gas production.”
Like a previous foundation study undertaken by RegionTrack issued in September 2016, this one also evaluates what types of impact oil and gas industry activities have on state tax revenues.
What makes this study a little different, RegionTrack said, is that it evaluates the industry between the third quarter of 2014 and the third quarter of 2016, a period when activities were significantly depressed.
It reports Oklahoma’s oil and gas industry lost 21,500 jobs and $8.9 billion in earnings during the period.
Beyond that, another 48,300 jobs and $22 billion in earnings were eliminated across other sectors of the economy, the study estimates.
State revenues from various tax streams also suffered, dropping $1.5 billion, or 15.4 percent, in total revenues and falling $2.25 billion below what previously had been estimated as future collections.
This week’s report also examines how the oil and gas industry and its employees and independent contractors pay state taxes, evaluates their contributions to the state’s gross domestic product and looks at the share of household earnings that can be attributed to the industry.
Based on changes made to gross production taxes in Oklahoma last year, the study calculates that the state’s effective gross production tax for Fiscal Year 2019 is 5.1 percent, which is fifth highest among the 16 largest oil and gas producing states in the nation.
Adding in ad valorem taxes, Oklahoma oil and gas companies paid a tax rate of about 6.4 percent on the value of produced product in Fiscal Year 2019, about average for producers within the top 16 states.
In the realm of corporate taxes, Oklahoma oil and gas companies paid a total of $2.43 billion in 2016 alone, accounting for 21.2 percent of all corporate taxes paid by state businesses that year.
The study estimates the corporate tax burden for Oklahoma’s oil and gas industry businesses as a share of production value was third highest among the top-16 states.
Personal income tax payments as a share of production in Oklahoma also were high, compared to the other 16 states, as were sales tax payments.
Combined, the study estimates the oil and gas industry, its employees and independent workers paid 11.7 percent in taxes on the value of produced product during the study’s time frame, fifth-most among the 16 largest producing states and more than a full percentage point above the group average.
As for oil and gas workers’ contribution to Oklahoma’s economy, it estimates Oklahoma’s gross domestic production grew an average of 2.41 percent annually between 2003 and 2017 and that the state’s oil and gas industry was responsible for 40 percent of that gain.
The share of earnings in Oklahoma derived from oil and gas activities averaged 9.3 percent between 2003 and 2017, reaching a peak of 15.6 percent in 2008 and declining to about 5 percent in 2017.
“Most evaluations of oil and gas taxation continue to focus solely on production-related taxes … and ignore the broader tax contribution of the industry,” the report’s executive summary states.
“The slowdown provided a rare opportunity to isolate the effects of fluctuations in the oil and gas sector on both state tax revenue and the broader state economy … (providing) a near-controlled experiment for gauging the economic influence of the oil and gas sector.”