Be Thankful North Dakota Democrats Didn't Get Their Way On Oil Tax Reform

oil tax

We’re past Thanksgiving, but here’s something you can be thankful for anyway: That Democrats didn’t get their way when they emptied their rhetorical silos in furious opposition to oil tax reforms earlier this year.

The Republican majority in the state Legislature pushed through reforms to the state’s oil taxes in the 2015 session which ended this spring, and it prompted vicious partisan attacks from Democrats who opposed the reforms.

Senate Minority Leader Mac Schneider (D-Grand Forks) said Republicans were reforming the tax for “senseless ideological reasons that are diametrically opposed to the best interests of North Dakotans.” He used the words “nightmare scenario” to describe the reform’s impact on state tax revenues, based on projections North Dakota Democrats cooked up.

Senator George Sinner (D-Fargo) even went so far as to demand that his caucus punish Senator Connie Triplett (D-Grand Forks) for daring to negotiate with Republicans on the reforms.

That the proposed reforms were something actually introduced by Democrats in 2011 – with House Minority Leader Kenton Onstad (D-Parshall) as one of the sponsors, no less – was apparently lost in the rush to partisan hay making. But I digress.

If there was a potential for a “nightmare scenario” when it comes to state tax revenues, it has been avoided, and no thanks to Schneider and his bombastic Democrat colleagues.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]If there was a potential for a “nightmare scenario” when it comes to state tax revenues, it has been avoided, and no thanks to Schneider and his bombastic Democrat colleagues.[/mks_pullquote]

With actual general fund revenues coming in below the revenue projections lawmakers used to budget – a gap that’s been widening in recent months – things could have gotten a lot worse in January when low oil prices would have triggered an elimination of the oil extraction tax.

Instead, lawmakers eliminated the trigger, effective January 1st.

Tax Commissioner Ryan Rauschenberger told lawmakers today that had the trigger gone into effect it would have reduced state revenues by as much as $1 million per day, or about $30 million per month.

State lawmakers I’ve spoken to are already conceding that Governor Dalrymple will likely have to dip into the state’s $527 million Budget Stabilization Fund to help make ends meet at some point in the 2015-2017 biennium. So make no mistake, that extra $30 million per month is a big deal.

Of course, it does mean higher taxes on the oil industry amid low prices when they could use some relief, but long term they get flatter and slightly lower tax.  If the price of oil is above $90 per barrel for three months the top tax rate for the combined oil production and extraction rates is 11 percent down from 11.5 percent under the previous code. If the price of oil is below $90 per barrel for three months the tax is 10 percent.

This was sensible reform, removing the triggers would have caused chaos in the state budget while simultaneously giving the oil industry some long-term relief. Were Democrats in charge of state government, instead of relegated to super minority status by voters, I suspect they probably would have passed something very similar. Or, at least, I’d like to think they wouldn’t let the state suffer for the sake of their ideological agenda.

As it happened, they stood on the sidelines and hurled partisan recriminations at those passing the reforms. And maybe that’s good politics. After all, “tax cuts for big oil” (even though this was sort of a big, fat tax hike for the industry in the short term) is an easy mantra to chant.

Which is another thing to be thankful for. That Republicans chose good policy over good politics.