ND Democrats Fighting Oil Tax Reform Should Take A Lesson From Kent Conrad

In the House Finance and Taxation committee today there is heated testimony over a delayed bill to eliminate a tax exemption triggered by low oil prices which could cost the state billions of revenues in the next biennium. Currently a 100 percent exemption to the state’s 6.5 percent extraction tax is on pace to trigger on June 1st because of low oil prices. The Republican leadership announced last week that they would be introducing the proposal which would turn that trigger from a temporary elimination of the extraction tax into a permanent reduction of that tax to 4.5 percent.

Meaning that instead of a variable tax rate based on oil prices the state would effectively have (when combined with the 5 percent oil production tax) a relatively flat 9.5 percent oil tax.

Makes sense, right? Well, the Democrats hate it, and they’re calling it a 30 percent tax cut for the oil industry, no doubt hoping to inflame anti-“big oil” sympathies with the public.

But the ideologues who make up the minority Democrat caucus in the legislature could take a lesson on this issue from one of their own. None other than former Senator Kent Conrad.

Back in 2011, as the nation was grappling with budget and spending issues, Conrad was a member of the bipartisan “Gang of Six” which was searching for a way to compromise. One of the ideas they came up with was very similar to what Republicans are proposing for the oil tax (emphasis mine):

A new bipartisan plan to reduce government borrowing would target some of the most cherished tax breaks enjoyed by millions of families — those promoting health insurance, home ownership, charitable giving and retirement savings — in exchange for lowering overall tax rates for everyone. …

The plan would simplify the tax code by reducing the number of tax brackets from six to three, lowering the top rate from 35 percent to somewhere between 23 percent and 29 percent. That could provide a windfall for wealthy taxpayers because the 35 percent tax bracket currently applies to taxable income above $379,150.

To help pay for lower rates, the plan would reduce popular tax breaks for mortgage interest, health insurance, charitable giving and retirement savings. Other tax breaks would be spared, including the $1,000-per-child tax credit and the earned income tax credit, which helps the working poor stay out of poverty.

Basically, what Conrad and his fellow Senators were proposing was an elimination or reduction of tax deductions such as the mortgage interest deduction, etc., etc., in exchange for lowering everyone’s tax rates rates.

The net impact on tax policy would be a code with fewer exemptions and deductions but also with lower rates. Or, in other words, exactly what Republicans are proposing for the state’s oil tax.

Republicans want to get rid of one of the biggest and most confusing exemptions in our oil tax code – the so-called “big trigger” which looks like it will hit on June 1st – and replace it with a lower, flatter rate.

The industry pays more in the short term, but less in the long term. The state gets more revenue certainty because the tax rate won’t be tied to volatile oil prices.

For everyone who isn’t an anti-oil ideologue, this seems like common sense reform. Indeed, even Senator Kent Conrad and other Democrats endorsed this approach to tax reform at the national level.