The Center on Budget and Policy Priorities has recently issued an analysis of a measure before voters in North Dakota this fall called Measure 2. Despite the bland name, Measure 2 is a dramatic proposal: it would cut the personal income tax by 50% and cut the corporate income tax by 15%, with an estimated two-year cost of $420 million.
North Dakota is in a fiscal situation very different from ours. The state is projecting a surplus, in part because the North Dakota economy is benefiting from high oil prices and high crop prices.
Remember the late 1990s when Minnesota was enjoying surpluses? I do, and I encourage North Dakotans to learn from some things that Minnesota did right, and some things that have come back to haunt us.
First the good. When states have large surpluses, it may make sense to use some of the surplus to reduce taxes – and why not learn from Minnesota’s experience? Minnesota issued several sales tax rebates, and policymakers found ways to include as many Minnesotans as possible, recognizing that all Minnesotans pay taxes.
Now the bad. During that boom period, Minnesota made permanent tax cuts assuming that the good times would last. Those permanent tax cuts made the state revenue shortfalls that followed more severe than they otherwise would have been, resulting in painful spending cuts and our ongoing challenges in funding state services.
I urge our North Dakota neighbors to learn from our experience. If you want to use some of your surpluses to cut taxes, make those tax cuts as broad-based and fair as possible. But don’t make permanent tax cuts as if the good times will last forever. In contrast, Measure 2 is poorly targeted: it cuts North Dakota’s already low income taxes (they are the lowest among the 41 states that have personal income taxes) and provides no tax cut to the approximately 30% of North Dakotans who currently pay no income tax. If Measure 2 passes, it would make it nearly impossible for the state to make changes to the state’s sales and property taxes, which have a greater impact on most North Dakotans than the income tax does.
The Center on Budget and Policy Priorities adds this recommendation: use a portion of this surplus to make investments that will give North Dakota a stronger economy in the long run. High-quality schools, strong universities, improved infrastructure – these are the investments that will help North Dakota thrive after the current oil boom goes bust.
– Nan Madden