— In 2008, Wyoming collected approximately $2.1 billion in taxes from coal and natural gas producers, compared to $787 million in West Virginia.
— Wyoming’s average effective tax rate on coal producers was 10.6 percent, compared to 6.5 percent in West Virginia.
— The average effective tax rate on natural gas producers was 10.2 percent in Wyoming and 8.2 percent in West Virginia.
— The average property tax rate for coal and natural producers in Wyoming was 4.8 percent for each industry, while the average property tax rate for natural gas was three percent and one percent for coal in West Virginia.
— If West Virginia replaced its real and personal property tax scheme with Wyoming’s county gross production tax, it would have raised an additional $115 million in 2008.
Earlier this week, my buddy Ted Boettner over at the West Virginia Center and Budget and Policy passed on a nifty new report from the firm DBL Investors that provides an interesting look at an always popular topic here on Coal Tattoo: Energy subsidies (see previous posts here, here and here).
I gave it a read yesterday, and was planning to blog about it … but Ted beat me to it, writing on his organization’s blog:
A new study by Nancy Pfund of DBL Investors and Ben Healey of Yale University shows us that federal subsidies have played a large role in guiding America’s energy economy over the last 200 years. In particular, Pfund and Healey quantify and compare how federal subsidies for earlier energy transitions in coal, oil, gas, and nuclear compare to our current commitment to renewables.
Ted quoted from the report:
Our findings suggest that current renewable energy subsidies do not constitute an over-subsidized outlier when com- pared to the historical norm for emerging sources of energy. For example:
– As a percentage of inflation-adjusted federal spending, nuclear subsidies accounted for more than 1% of the federal budget over their first 15 years, and oil and gas subsidies made up half a percent of the total budget, while renewa- bles have constituted only about a tenth of a percent. That is to say, the federal commitment to O&G was five times greater than the federal commitment to renewables during the first 15 years of each subsidies’ life, and it was more than 10 times greater for nuclear.
– In inflation-adjusted dollars, nuclear spending averaged $3.3 billion over the first 15 years of subsidy life, and O&G subsidies averaged $1.8 billion, while renewables averaged less than $0.4 billion.
Nancy Pfund, Managing Partner, DBL Investors and co-author of the report, said:
All new energy industries – timber, coal, oil and gas, nuclear – have received substantial government support at a pivotal time in their early growth, creating millions of jobs and significant economic growth. Subsidies for these ‘traditional’ energy sources were many, many times what we are spending today on renewables.
Here’s something you probably won’t hear the major candidates for West Virginia governor talking much about: It seems West Virginia’s coal industry pay significantly less in severance taxes than other mineral-producing states.
That’s what the fine folks over at the West Virginia Center for Budget and Policy had to say in this new blog post:
… It’s not surprise that the top severance tax states all are rich in coal, oil, gas, or all three. Alaska tops the list, with over 66% of state tax revenue coming from severance taxes. West Virginia comes in with over 7% of state tax revenue coming from its severance tax.
But I wanted to be sure to share with Coal Tattoo readers some of the report’s findings about the coal industry, for example:
Another conventional fossil fuel, coal, also continues to be the darling of Washington, despite its serious environmental consequences. The coal industry benefits from billions in federal subsidies, even as it makes substantial profits. Subsidies to the coal industry began in 1932, when the federal government first began allowing companies to deduct a portion of their income to help recover initial capital investments (the percentage depletion allowance). Since then, coal companies have enjoyed billions more in subsidies, including some hand- outs for simply following basic worker safety regulations, while earning billions in profits. Over the last decade, revenues at the largest domestic coal companies trended upwards, while profits have mostly followed. Peabody Energy, the largest private sector coal company, earned record breaking profits in 2008 and has already posted $461.3 million in profits in 2011, up 36 percent from the first six months of 2010. Consol Energy recorded nearrecord income of $540 million in 2009, and this year, first quarter profits nearly doubled from 2010 to reach $192 million.
The New York Times and the Economist both had interesting pieces last week highlighting the difficulties of federal corporate tax reform. Most interesting, however, was a chart in each article showing the effective federal corporate income tax rate by industry. Unfortunately (or fortunately), the chart contained a major error. The effective rates in the chart are not just for the “federal” corporate income tax, but for federal, state and local taxes paid by companies.
The chart was compiled using data from about 6,000 (not 7,000) publicly traded companies by Aswath Damodaran, a Professor of Finance at the Stern School of Business at New York University. The data show that the total effective corporate tax rate is 15.3% for all companies, and 29% for companies that made a profit. It is important to keep in mind that the the top federal corporate tax rate is 35%. The effective rate was found by dividing the taxes paid by the taxable income as reported to the stockholders.
There are several reasons why companies pay so little, but one is that our federal and state corporate tax code is riddled with tax preferences and tax subsidies – what some are beginning to call “tax earmarks.” And these tax expenditures have a lot of powerful friends. This means efforts to reform the corporate tax code – reduce the rate and close loopholes – will benefit some companies while hurting others.
The chart above displays effective tax rates for select industries. According to WorkForce West Virginia, these industries are some of West Virginia’s largest employers, such as Kroger, WV United Health, AEP, Consolidated Coal, Chesapeake Energy, Mylan, Dupont, and Wal-Mart.
As you can see, profitable coal companies (20 out of 25 were profitable: see here) have a smaller effective tax rate than any of the other dominant industries in West Virginia. In fact, of the 100 industries examined by Damodaran, the coal industry had the 7th lowest effective rate. The natural gas industry, which has been getting a lot of attention lately, also had a below average effective rate.
While some have argued that the state already taxes coal too much, it appears the industry doesn’t pay nearly as much as other companies or as much as most households
According to a 2008 Congressional Budget Office (CBO) report, the total household effective “federal” tax rate in 2005 was 20.5%. (Here are the effective taxes rates by category: individual income tax 9.0%, social insurance (Medicare, Social Security) was 7.6%, corporate income 3.1%, and excise was 0.8%.)
Well, now it seems that President Obama is interested in making it so. As my buddy Peter Gartrell reported for Platts:
The coal industry stands to lose nearly $2.6 billion in federal tax incentives over the next decade as part of the Obama administration’s proposed fiscal 2012 budget released Monday.
The administration’s proposal is identical to coal incentives cut in its budget last year. The White House is aiming to meet a G-20 climate change agreement from 2009 in which member countries pledged to phase out fossil fuel subsidies.
Repealing the tax provisions would “foster the development of a clean-energy economy and reduce our dependence on fossil fuels that contribute to climate change,” the administration said in its budget message. The tax incentives equal less than 1% of the coal industry’s revenue over the next 10 years, according to White House projections.
United Mine Workers President Cecil Roberts and West Virginia Congressman Nick J. Rahall warned this morning that a crucial UMWA pension plan — covering 120,000 working and retired miners — is at risk of insolvency without some kind of fix.
The fix proposed by Rahall and the union has the support of the Bituminous Coal Operators Association, but it received a cold reception today from the Obama administration during a congressional hearing before the House Natural Resources Committee that Rahall chairs.
You can read all the testimony here, but I’ll try to summarize the situation as best I can, and provide more detail and context than my post last night alerting readers to today’s hearing.
First, the UMWA was a bit upset with that post last evening, so let’s allow Cecil Roberts some space here to explain why he believes Rahall’s H.R. 5479 is so important, to protect pension benefits provided to UMWA members under what is known as the 1974 Plan:
The retirees and surviving spouses who depend on the 1974 Pension Plan live in all 50 states, but the majority of them still reside in the coal mining states of West Virginia, Pennsylvania, Kentucky, Illinois, Virginia, Alabama, Ohio and Indiana. Many of the retirees are elderly with nearly 40 percent of the retired population over 75 years of age and about 17 percent of the population over 85 years of age. The 1974 Plan provides them with modest but crucial income. The average pension benefit for a retired miner currently receiving benefits from the 1974 Pension Plan is $590 per month and for a surviving spouse the average benefit is about $304 per month.
In addition, noting the recent mine disasters at Upper Big Branch, Sago and Crandall Canyon, as well as the thousands of deaths from black lung disease, Roberts told lawmakers:
I think any reasonable observer would agree that coal miners work in harsh conditions that endanger their lives in many ways. They should not have to worry about the modest pensions that have been promised them after they retire.
OK … before we move to the details of the legislation, a little history is necessary …
When it passed the 1977 federal strip mining law, Congress created a tax on coal production, meant to raise funds to reclaim coal-mine sites that were abandoned prior to the law’s requirement that operators clean up after they’re done mining. Folks who have followed the issue know that the Abandoned Mine Land program hasn’t quite lived up to its promise, at least in part because Congress and the Office of Surface Mining have allowed money to be diverted from its primary purpose — cleaning up dangerous coal-mining sites — to other things. We outlined this whole problem a few years ago in a Gazette series, and this story summarizes it pretty clearly.
Massey CEO Don Blankenship was escorted from the Aracoma Alma No. 1 Mine by West Virginia State Police after the January 2006 fire that killed two workers. AP photo.
This just in from The Associated Press:
The chairman and chief executive of coal miner Massey Energy Co. received compensation valued at $19.7 million in 2008, a 17 percent decrease from the previous year, according to an Associated Press analysis of data filed with regulators Tuesday.
The Richmond, Va.-based company paid Don L. Blankenship $1 million in base salary and a bonus of $300,000, the same as the previous year.
Blankenship, 59, also received a performance-based cash bonus of $6 million, up 15 percent year over year.
The study, cites only a few examples. But in my experience trying to find out where government economic development money went, I’ve learned that state officials from both political parties are very secretive about these matters. Even when they’re not, state officials have a hard time putting numbers together that show which incentive programs are working and which aren’t — let alone which specific deals worked and which didn’t.