North Dakota Should Not Eliminate Income Taxes


According to my colleague, reporter John Hageman, folks from the American Legislative Exchange Council (ALEC) is set to propose eliminating North Dakota’s income taxes at a hearing before state lawmakers:

Erin Oban, a Democratic state Senator from Bismarck who is facing a re-election challenge from Republican Gary Emineth, argues that we should not eliminate income taxes because it would make our state even more susceptible to swings in the commodity markets (oil, notably, and crop prices) which wreak havoc on our budgets:

I agree with Oban’s main point, though she’s obscured it a bit in this tweet with a descent into Democratic talking points about state spending. While it’s absolutely true that we’ve had to cut budgets in recent years, that’s due to unsustainable spending growth approved by Republican majorities during the oil boom years. They spent like those days of $100 per-barrel oil prices and tidal wave tax revenues were the new normal.

They weren’t, and the budget had to be adjusted.

I would remind Oban that her party, during that period, was hardly arguing for fiscal restraint. Rather, they urged even more spending.

But the point about eliminating income taxes making us too dependent on oil tax revenues is well made.

I haven’t always felt this way. There was a time when I thought it might be a pretty good idea to eliminate income taxes, perhaps replacing the revenue with an increase in the state sales tax, since taxes on consumption are preferable to taxes on productivity.

As a practical matter, however, we shouldn’t lose sight of the importance of keeping our tax base broad. Eliminating the income tax would narrow the state’s revenue streams significantly.

That’s not good policy.

We’re better off keeping taxes low and broad. Not only does this make state revenues more stable, and more predictable, but it ensures that the electorate keeps some skin in the game when it comes to paying for our government.

If we narrow our tax base too much we end up with a situation where the many propose ever larger government paid for by the few. Like, say, the oil industry.

I’m interested in seeing what ALEC’s argument is – our friends on the left hate the group yet they do fine work generally – but in a state like North Dakota where diversifying the economy has been a generational struggle we still haven’t resolved I just don’t think a proposal like eliminating the income tax is a good idea.