Senator Rich Wardner: Critics Of Oil Tax Reforms Fail Economics Test

By making North Dakota a great place to do business, our state has enjoyed unparalleled economic growth and job creation over the last 20 years. Virtually every sector of our economy has grown and provided new opportunities for the people across this great state.

Unfortunately, Democrats like Senate Minority Leader Mac Schneider and House Minority Leader Kenton Onstad, in their criticism of the oil tax reforms passed during the last session, fail to understand the importance of having a regulatory and taxation environment that balances the needs of industry and the needs of the people.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]Reforms passed at the end of the 2015 legislative session ended a 1980s-era low price incentive that would have taken the extraction tax to 0% until prices rebounded. In exchange for taking away this incentive, legislators permanently reduced the oil tax to 10% if the price is under $90 per barrel, and 11% if the price is above $90.[/mks_pullquote]

Our state has one of the highest oil tax rates in the nation. At an effective rate of 11.5%, North Dakota’s oil tax rate is substantially higher than the rate in Texas and nearly double the rate in Oklahoma. Both of these states are our biggest competitors in attracting oil industry investment to North Dakota.

Reforms passed at the end of the 2015 legislative session ended a 1980s-era low price incentive that would have taken the extraction tax to 0% until prices rebounded. In exchange for taking away this incentive, legislators permanently reduced the oil tax to 10% if the price is under $90 per barrel, and 11% if the price is above $90.

If we have learned anything over the last six months of oil industry layoffs, reduced investment and reduced tax revenue, it is that we can’t take our oil industry for granted and we must do all we can to encourage its responsible development. While we can’t do much about the impact of our winter climate and transportation challenges on development costs, we can make sure we have a regulatory and tax system that encourages further investment in North Dakota.

These reforms will encourage the oil industry to continue to provide the thousands of good paying jobs and economic opportunity it brings to people across North Dakota. Not just in the oil fields, but also in the support industries, fertilizer plants and plastic plants that are being built because of it. And while oil development has brought challenges, there is no question that the net effect of this industry has been a game changer for our state and helped make North Dakota the envy of the nation.

Of course, these reforms also had the benefit of bringing stability and certainty to state oil revenues. The threat of the 0% extraction tax incentive kicking in forced the legislature to budget for a dramatic drop in oil tax revenues and thereby reduced the money we could invest in education, water projects and infrastructure in the 2015-17 budget. Not only will elimination of this incentive bring certainty to state revenues, but by encouraging oil development with a long-term lower rate, our state will actually increase oil tax revenues as well as sales tax revenues and income tax revenues, too.

[mks_pullquote align=”left” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]Those who believe that the 0% extraction incentive might never kick in and our reforms were unnecessary are naive at best.[/mks_pullquote]

Those who believe that the 0% extraction incentive might never kick in and our reforms were unnecessary are naive at best. The last time the incentive kicked in, it stayed in effect for 17 years. This spring, we were within days of the incentive taking effect for the second time since 2009. With worldwide oil production predicted to grow, it was not if the 0% extraction incentive would have kicked in, it was simply a matter of when.

The time has come to stop treating the oil industry like a bottomless trough of money and recognize we have to foster its development in order to ensure continued success. The oil tax reforms passed in the last legislative session will not only ensure we have a dependable stream of oil revenues for education, water projects and infrastructure, but they will help North Dakota remain a great place to do business today and long into the future.