NEW YORK–(BUSINESS WIRE)–#KBRA–KBRA releases research noting that the dramatic increases in oil and gas prices should have a positive effect on revenue sources for certain energy-producing states that typically levy excise taxes on the extraction of oil and gas, with the tax rates tied to the price of the commodity. As the price of oil and gas rises, so do the excise tax receipts. States expected to benefit from growth in oil and gas excise tax receipts include Texas, New Mexico, Alaska, Louisiana, Oklahoma, and North Dakota.
The history of these revenue collections has typically followed a boom-and-bust pattern reflecting the volatility of oil and gas prices, where rapid growth in revenues was often followed by steep declines. The regulatory environment going forward, however, is less supportive of growth in oil and gas production because of the longer-term goal of reducing carbon-based fuels.
In states that do not produce oil and gas, the effect of rising prices on tax collections may be less favorable. Taxes on gasoline which are widely used by states to finance transportation, are generally tied to volume, rather than price. The higher cost of gasoline leads to downward pressure on the volume of gallons purchased which could depress gasoline tax collections. Further, several states (e.g., Connecticut, Georgia, and Maryland) have implemented gasoline tax holidays to lessen the effects of higher gasoline prices on consumers, which further reduces revenue collections.
- Higher energy prices are expected to lead to revenue growth for energy-producing states.
- The public policy objective of dramatically reducing the role of oil and gas in the economy could lead to less production, contributing to sustained higher prices that could prolong higher revenues for these states.
- The public policy affecting energy production is under debate and production could be expanded which could eventually lead to falling oil and gas prices and declines in extraction tax revenues.
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