North Dakota’s roaring economy puts the state at the top of a lot of economic lists that are good to be at the top of. Growth in incomes. Growth in gross state product. Growth in business development. There’s no doubt, North Dakota is thriving right now.
And the state’s politicians like to take a lot of credit for that, which isn’t always deserved. The state’s political leaders should get credit for not taxing and regulating the oil boom out of existence, but sometimes from the press releases and sound bites you get the idea that they put the oil under the ground too.
That’s just not so. In fact, I’d go even further to suggest that the economic boom driven by the oil boom is covering up a lot of less-than-good policy which could be improved.
To illustrate that point, look at CNBC’s 2013 rankings of the best states to do business in. North Dakota is number three. Texas, which has also benefited from an oil boom of their own, is number two. But number one is a state that doesn’t have the wind at its back from an energy boom: South Dakota.
So how did South Dakota beat out Texas and North Dakota? Low taxes and limited government:
CNBC Senior Correspondent Scott Cohn reported today live from the Mount Rushmore National Memorial and counted down the top five states throughout CNBC’s Business Day programming and on CNBC.com. Coverage of America’s Top States for Business will continue on-air and online through Wednesday, July 10th.
“South Dakota has always been a solid performer in our study, but with businesses focusing more than ever on low costs, the state really shines,” Cohn said. “We found it has one of the lowest tax burdens in the country as well as low wage and utility costs. The regulatory climate is one of the friendliest to business anywhere, and the biggest issue in South Dakota’s booming economy is that low unemployment means fewer available workers.”
Put simply, South Dakota is at the top of this list because the leaders there have purposefully worked to keep taxes and regulations low, which has resulted in a strong economy that provides plenty of revenue for the state to address things like infrastructure.
North Dakota is near the top of this list because we have an oil boom, not because of any policy agenda set by the state’s leaders.
That’s an important distinction, and to illustrate the point further, consider that in 2011 and 2010 (years when the full impact of the oil boom wasn’t yet being felt on the economy) North Dakota was much further down this list, ranking 13th and 12th respectively.
North Dakota is being ranked as a good state for business because we were lucky enough to have a lot of oil under the land, and the right market conditions for companies to pump it at a profit. The state didn’t move up this list because of fiscal restraint or tax reforms.
Recently Stephen Moore wrote a column for the Wall Street Journal about states on spending sprees. He mentioned North Dakota (and quoted a certain well-known blogger):
Oil-rich North Dakota is also celebrating Christmas early. The Republican legislature and Gov. Jack Dalrymple approved budgets this spring for the next two years that pump up spending by more than 50%. The budget finances a massive expansion of Medicaid and pork projects, such as the purchase of a marina at a state park. “It’s hard to imagine Democrats would have spent this much,” laments Rob Port, the state’s top taxpayer watchdog and creator of the popular political blog, Say Anything.
And not only has North Dakota been on a spending binge, but there has been resistance to tax reform as well. During the recent legislative session there was a clash between state House Republicans who wanted $500 million in income tax cuts and Governor Jack Dalrymple who, backed by the Senate, wanted a much smaller package (a bill proposed by Rep. Scott Louser to eliminate the income tax for two years was shot down even in the conservative House). The govenor won, and the tax cuts were cut and half.
Yet, when the legislative session ended, the Office of Management and Budget released figures indicating a $1.6 billion revenue surplus for the state, a figure that (to the consternation of legislators) was 48% higher than what the budget was based on.
North Dakota citizens and businesses could be paying far less in taxes than they are, but because of the hostility toward significant tax reform from the state’s leadership, they aren’t getting the relief.
Which is why South Dakota, and not North Dakota, is on top of this list.