Another economic consideration is how much money the federal government is making from the natural gas industry, and tax regulations or tax deductions involved in hydraulic fracturing. Taxes and tax deductions are important because they are a direct indicator of the economic effect of hydraulic fracturing on the government.
A recent report titled, America’s New Energy Future: the Unconventional Oil and Gas Revolution and the U.S. Economy, Volume 3, examined the amount of money paid by natural gas companies in taxes, and projections for future taxes. A chart from this report is in Figure 2. According to the report, in 2012, the industry paid over $63 million in taxes to the government. This figure includes both the state and federal governments. That number is expected to increase significantly as the natural gas industry becomes larger and its profits increase. Projections show that by 2025 the amount of money paid by the industry in taxes is expected to double. The report also shows that between 2012 and 2025, the amount of money paid to the government by natural gas companies alone is expected to surpass $1.4 trillion. This estimate only includes the natural gas companies themselves, and does not include taxes paid by industries related to hydraulic fracturing or the taxes workers pay. Industries related to hydraulic fracturing are expected to contribute over $200million in taxes, making the total amount of taxes from natural gas and related industries over $1.6 trillion by 2025. (3)
One controversial tax deduction in hydraulic fracturing is Intangible Drilling Costs (IDCs). IDCs are defined as “all expenses an operator may incur at the well site that don’t – by themselves – produce a physical asset for the producer” (4). In hydraulic fracturing, an IDC is essentially anything that needs to be done in order to obtain the natural gas, such as surveying the land, fuel expenses, and labor. These companies get tax deductions for any IDC, which can account for up to 90% of the cost of drilling the well (5). IDC deductions are controversial because they allow companies to get money back very quickly and significantly cut the cost of creating new wells. Recently some politicians have tried to abolish IDC tax deductions (6), but many supporters of hydraulic fracturing say IDCs are similar to tax breaks other industries receive. Some sources also claim IDCs are necessary for natural gas companies and that without IDCs companies would not be able to expand, hindering economic growth and job creation for the entire industry (5).
Marcellus Shale