Let’s All Be Thankful Democrats Didn’t Get Their Way on North Dakota’s Oil Tax
Ever since Republicans reformed North Dakota’s oil tax – setting the combined extraction and production taxes at a flat 10 percent and removing a massive exemption triggered by low prices – Democrats have tried to turn it into a partisan talking point.
To hear them tell it, Republicans gave away millions upon millions of dollars to “big oil.” They’ve even gone so far as to claim that the tax reform contributed to the state’s recent budget problems.
It didn’t. In truth, the state has collected about $1 billion in additional revenue since January 2016 thanks to the reform.
[mks_pullquote align=”left” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]”Let’s not forget if Dems had their way in 2015, the oil tax triggers would still be on and I’m guessing about $2 million less per day would be collected,” the reader wrote. “It would be budget disaster.”[/mks_pullquote]
Had Democrats gotten their way back in 2015 the oil tax code would have remained as it was. Low oil prices would have triggered the exemption, and the taxes paid by the oil industry would have been cut roughly in half. Instead of generating more tax revenue through the recent budget problems, the oil industry would have been paying the state far less money.
Yesterday I wrote about oil and gas tax revenues beating the forecast lawmakers used to budget for the current biennium. Average daily oil production was 29 percent above forecast in January, and has run 20 percent above forecast biennium to date. The average price per barrel of oil was 13 percent above forecast in January, though still 4 percent below forecast biennium to date. Oil and gas tax revenue collections were up 36 percent in January, and are up 10 percent – or nearly $80 million – biennium to date.
That’s good news, but a reader wrote in saying I should have also pointed out that we would be without this happy news had Democrats not lost the fight over reforming the oil tax code.
“Let’s not forget if Dems had their way in 2015, the oil tax triggers would still be on and I’m guessing about $2 million less per day would be collected,” the reader wrote. “It would be budget disaster.”
That’s exactly right.
The oil tax code previous to the 2015 reforms was a revenue landmine. Nobody could predict with any degree of accuracy whether oil prices would trigger the tax exemption or not, meaning state revenue could see a swing of a billion dollars or more in a biennium.
How can you make good fiscal policy when your tax code is that unpredictable?
Democrats will continue to try and mislead the public about the 2015 reforms, but the efficacy of that policy change has been thoroughly demonstrated. Even though the oil industry had to pay significantly more in taxes in the short term, in the long run both state and industry will benefit from a tax regime that is flat and predictable.
