There is absolutely no question at this point that the decision by lawmakers in 2013 to rid the state’s oil tax code of oil price “triggers” and other exemptions was a mistake. With oil prices continuing to plunge it seems likely that a trigger eliminating the state’s oil extraction tax, and causing a wild multi-billion dollar swing in the state’s revenue forecast, will hit.
Anyone who believes a variable tax rate based on something as volatile as oil prices is preferable to a flat tax rate with no triggers or exemptions is a fool. This is not the stuff of sound fiscal policy. It creates chaos for the state when it comes to budgeting and for the oil industry when it comes to calculating what their tax obligations will be.
[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]In other words, to get rid of the tax trigger land mine, Democrats wanted to kill the golden goose.[/mks_pullquote]
Sure, if the trigger hits the industry will be paying billions less in taxes, but in my conversations with oil industry insiders they say they’d much rather have the certainty of a flat and predictable tax.
But North Dakota Democrats have been proud of their efforts to kill oil tax reform. “To the extent that we ‘forced’ the GOP majority to abandon that flawed proposal, well, good for us,” Senate Minority Leader Mac Schneider wrote in an op/ed in January defending his party’s role in killing legislation to replace the tax triggers and exemptions with a flat oil tax.
This week, however, lawmakers are due to receive a new revenue forecast, and nobody expects it to be pretty. With oil prices still dropping, and state oil production falling off for the first time in years, there’s no question that billions of dollars in tax revenues are coming off the table.
Now, suddenly, Democrats are changing their tune. You can see the worry in their weekly “Capitol Letters” email blast to party loyalists (see below) which the dedicate to spinning their position on the oil tax trigger. The Democrats now claim that they supported eliminating the trigger, but only if the overall tax rate wasn’t lowered.
Which would be akin to eliminating the mortgage deduction for income tax filers without lowering income tax rates. The price Democrats wanted for common sense oil tax reform was a massive tax hike for the oil industry.
In other words, to get rid of the tax trigger land mine, Democrats wanted to kill the golden goose.
Still, the fact that Democrats are now spinning the oil tax trigger issue shows that they know they (along with just enough Republicans to get a majority) were in the wrong. A lower flat tax with no triggers is a much better thing for the state and the industry than a tax code that can produce multi-billion dollar revenue swings.
Shame on Democrats for basing tax policy on their ideological hatred of the fossil fuel industry, and shame on Republicans for letting themselves be pushed around on this issue by the super minority.