Grand Forks Herald Engages In A Bit Of Tax Rates Hypocrisy

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Written By:
Rob Port

Jan 31, 2011
11:36am

Last week the Grand Forks Herald came out against lowering and simplifying North Dakota’s oil extraction tax arguing that the tax’s high and complicated status quo wasn’t hurting oil production. “The oil production tax is doing great things for North Dakota and clearly isn’t hurting oil production in the least,” wrote Tom Dennis for the Herald.

This is an odd argument in light of Dennis’ editorial in the Herald today which warns against raising the city’s sales tax to the highest level in the state in order to fund the building of a new library.

“If possible, avoid making Grand Forks’ tax the highest in the state,” says Dennis obviously concerned about what elevated sales taxes will do to the city’s economy. And he’s right to be concerned. Generally speaking, high tax rates inhibit economic activity especially when there are lower tax alternatives readily available.

If only Dennis would apply that same logic to North Dakota’s oil extraction tax. We have the highest oil extraction tax rate in the nation, and it’s replete with so many triggers and exemptions that the cost of complying with it is a tax in and of itself. And the Bakken oil play isn’t limited to North Dakota. A good deal of it is in Montana, which has a lower and simpler tax than North Dakota does.

Now, you can argue (and Dennis does) that North Dakota’s oil extraction tax doesn’t seem to be inhibiting oil production right now. I’d say that’s correct. And I’m not even sure how much more oil development the state could handle right now until certain infrastructure issues are addressed. But opposing the lowering and simplification of the oil extraction tax on these grounds is short sighted.

The tax isn’t inhibiting oil production now because the market is favorable. That doesn’t mean the market will always be favorable for oil production in North Dakota. The federal government could enact new regulations. Federal taxes on oil production could go up. EPA regulations could add enough burden to producers to inhibit production. The market itself could change.

Lowering and simplifying this tax is a move toward the long-term security of oil production in North Dakota, which is the sort of attitude we should have not this “get while the getting is good” attitude that seems to permeate so much of the debate on this topic.