February 24th, 2015

As expected, those opposed to substantive tax cuts are using the current downturn in oil prices and the oil tax windfall as an excuse to not take bold action on the tax front. While the excuse is due to the fluctuation in oil prices - that is not the real reason– it’s past spending increases that are the culprit.

This session, the legislature has been dealing with the reality that the oil tax windfall is not guaranteed (despite past assertions by state leaders that this is the boom that won't go away). As such, lawmakers have had to change the way they approach things. Governor Dalrymple sent the legislature a proposed budget that has had to be clipped and culled significantly to live within the revenue world that the Governor's budget team did not forsee.

Several income tax cut and reform plans were introduced this session. Six-months before the session, many would have said that the effort to zero-out the state income tax rate would have had a pretty decent chance. Unfortunately, the revenue situation made that impossible and House Bill 1167 only got 23 votes, even when a provision was placed on the bill that said it would not go into effect if the big trigger were to hit on oil tax revenue.

When the House Finance and Taxation Committee heard testimony on all the income tax bills, I spoke to the need to take a compromising position of pushing House Bill 1296 forward as it represented not only a rate reduction, but also a structure reform.

House Bill 1296 was a Flat Tax, exempting roughly $18,000 of every single filer's income, and twice as much for married filers.

This Flat Tax approach only received 31 votes, a few Democrats did vote for it, but not as many as should have considering their last Tax Commissioner candidate proposed something very similar and the Democratic House Minority Leader endorsed that plan.

One might ask Democrats why they have flip-flopped on this concept as much as one must ask many Republicans why they could not get behind it as a major reform.

They could bring it back for reconsideration today (February 24th, 2015) if they want to bring some consistency to their policy stances.

What did pass was a watered down, mediocre, very minimal reduction of rates.

House Bill 1223 started as a fairly decent consolidation of the tax brackets and a reduction of rates - not as good as HB 1296, but still better than what was actually amended and passed.

What the House ended up passing is a $150 million across the board rate reduction. While it is much like what has passed in recent sessions, it is no where near the $500 million tax cut plan the House passed in 2013.

Fear is in charge in Bismarck, but it didn't have to be this way.

The desire to grow government and increase spending over the last eight years has created a situation where the legislature has pinned itself in a corner due to out of control spending.

The math isn't working any more in tight times, the cost to 'hold harmless' is so high now it is nearly impossible convince lawmakers to make bold moves on tax policy - even moves that both sides have backed recently.

The budgets passed in the last eight years are not sustainable, and 2015 is just a preview of how bad it could be in 2017 if spending is not brought under control.

-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network