Port: Do we really want to put more of North Dakota's eggs in the oil revenue basket?
In early 2019 a study, commissioned by the North Dakota Petroleum Council and the Western Dakota Energy Association, found that from 2008 to 2018 direct taxes on the oil and gas industry - just the combined extraction and production taxes alone - accounted for 44 percent of all taxes collected by the state government.
MINOT, N.D. — Is former Fargo City Commissioner Mike Williams considering running for the Legislature, or perhaps a statewide office, this election cycle?
I don't know the answer to that question, but a recent letter by him to The Forum of Fargo-Moorhead sure sounds like the sort of thing a prospective candidate would write, especially since it apes a tired talking point about oil taxes Democrats have been using unsuccessfully for two election cycles.
In his letter, Williams argues, as Democrats have for years now, that North Dakota should restore the state's oil extraction tax to 6.5%.
The Legislature, in 2015, lowered the extraction tax to 5%. According to Williams, that has cost North Dakota some $900,000 in revenues per day. Williams imagines that we could do all sorts of cool things with that extra revenue.
The problem with this argument is that Williams, like the Democrats before him, is only telling you part of the story of the 2015 oil tax reform. He's also arguing to make our state even more dependent on oil taxes than it already is.
Neither is a good thing.
To the first point, while Williams is right that the oil extraction tax rate was lowered, you cannot ignore that an exemption to the tax triggered by low oil prices was also eliminated. I contacted the Office of the Tax Commissioner to get updated numbers (see the spreadsheet they provided me below) and the net impact of these two policy changes — the rate reduction and the elimination of the trigger exemption — has been a half-billion-dollar tax increase on the oil industry.
People like Williams like to carry on as if we gave the oil industry a tax break. In truth, we raised taxes on them significantly, while simultaneously making the tax itself more predictable (tying anything to oil prices is a sure way to make that thing unpredictable).
Through January, the North Dakota oil industry has paid $577 million in additional taxes since they began complying with the new code.
If people like Williams want to talk about the oil tax rate, they need to talk about this part of the issue as well.
As for raising the oil extraction tax rate, why do we want to make North Dakota even more dependent on oil tax revenue than it already is?
In early 2019 a study, commissioned by the North Dakota Petroleum Council and the Western Dakota Energy Association, found that from 2008 to 2018 direct taxes on the oil and gas industry —just the combined extraction and production taxes alone — accounted for 44% of all taxes collected by the state government.
That's not counting the tax revenues the oil industry generates indirectly by driving commerce and employment and developing property, which contributes to sales, income, and property tax revenues, respectively. I can't quantify those impacts for you precisely, but when I speak to state officials about the issues, their consensus is the slice of state tax revenue pie attributable to the oil and gas industry is north of 60%.
That sounds about right to me.
Do we want to put more eggs in that basket?
People such as Williams, and the North Dakota Democratic Party, say yes, and they're very, very wrong.
The oil and gas industry is paying enough in taxes to the State of North Dakota. We need to focus on diversifying our state's economy so that the industry's contributions are a same-sized slice of a larger pie.
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Rob Port, founder of SayAnythingBlog.com, a North Dakota political blog, is a Forum Communications commentator. Listen to his Plain Talk Podcast and follow him on Twitter at @RobPort.