[Advocates for raising Oklahoma’s gross production tax from the current 1 percent rate to 7 percent on horizontal and deep-well drilling for oil and natural gas have made questionable claims about the nature of the tax, the effects of energy drilling on Oklahoma’s economy, and the relationship between taxes on drilling and funding state government. This is the second in a series of posts in which we present the facts.]

Myth: If Oklahoma’s gross production tax rate on horizontal and deep-well drilling for oil and natural gas is increased from 1 percent to 7 percent, Oklahoma schoolchildren will benefit from more than $250 million in additional public education spending.

Facts: From Fiscal Year 1998 through Fiscal Year 2011, district administration in Oklahoma public schools increased by 49 percent, while student enrollment increased only 6 percent, according to data from the National Center for Education Statistics. As this trend continues, Oklahomans can expect that a large percentage of additional funding for education will be siphoned off by school district administrators before it reaches the classroom. Plus, whenever overall tax collections increase, public education is only one of many tax consumers demanding a slice of the pie. In recent years, total annual state government spending on health care in Oklahoma has finally exceeded total annual state government spending for Oklahoma education, according to data from the state’s budget office.

Additional data suggest raising tax rates on oil and gas drilling in Oklahoma by 600 percent could actually result in less tax collections, not more, as producers shift future drilling activity to other parts of the continent where they can achieve a greater return on investment.

Those advocating for a major tax increase on oil and gas drilling in the state are making two dangerous assumptions. First, they assume energy producers will submit themselves to the higher tax rate, even though capital is more mobile in the twenty-first century than ever before. Second, they apparently assume that all additional tax collections that might come in due to a rate increase would be directed straight to Oklahoma schoolrooms. This is wildly dismissive of past experience.

As well, the same individuals who imply that increasing tax rates on drilling will provide more education funding are also adamant that additional state funding is needed for Medicaid, corrections, mental health services, pay raises for state government employees, water infrastructure, and much more. We are not told which tax rates they would increase to secure funding for these additional expansions of state government. Meanwhile, they are silent about the fact Oklahoma’s government spending, tax collections, and available funds for public education are at all-time highs, or that Oklahoma still gives state tax dollars to golf courses and rodeos.