North Dakota’s coffers are overflowing. So much money is coming into the state that the legislature has cut $1.1 billion in income taxes and agricultural and commercial property taxes. This is a huge chunk, especially considering North Dakota already has the tenth lowest income tax rates in the country.
While North Dakota has never been known as a “bell weather” state, how it handles its budget surpluses could be instructive for other states that see brighter days ahead.
With the oil boom and the flood of workers entering the state, North Dakota simply does not have to worry about tax revenue right now. Unemployment is only 3% statewide, and with more people paying tax and less people drawing on social welfare programs, North Dakota is in good financial shape.
The rest of the government is struggling, though. The population increase was so huge and so rapid that there is not enough housing. Despite their six-figure salaries, rig workers have been forced to live in their cars, at public campsites, or in makeshift “man camps” .
Local commentators have suggested focusing tax cuts on residential valuation, and allowing for a homestead credit. This would help encourage homebuilding and home ownership, and would also keep the benefit of the increased tax revenue within the state, as many who will receive the benefits of the tax cut are temporary workers or out-of-state business owners.
More and more people are flooding into the state, helping North Dakota become the second largest oil producing state in the country. As the state takes advantage of the revenue and employment that flows from this liquid gold, they should also take a moment to reassess their tax collection strategy, focusing on helping current residents and planning for the future.
As improvements in fracking technology boost fuel production in other areas of the country, such as Pennsylvania, West Virginia and Ohio, the tax policy developed in North Dakota might serve as a role model for the oil booms to come.
Other states are enjoying similarly bountiful surpluses, including California, Connecticut, Utah and Wisconsin. California’s budget surplus comes only a few years after they were short $60 billion. While North Dakota boosted its revenue through an influx of job creation, California went to a different extreme, slashing social welfare programs at a time when they were needed most.
There is still debate about whether the California budget surplus is actually the result of less spending. It may instead be attributed to the singular event of individuals selling assets at the end of the year to avoid the impact of the expiring Bush tax cuts. Legislators are now arguing about what to do with the surplus, as it may not be a recurring event. Some want to restore social programs, while others want to create a rainy-day fund.
With the improving economy, all 50 states will at some point be forced to take a hard look at their currently pared-down budgets. Will they invest in infrastructure, like they desperately need in North Dakota? Or will they reinvest in social welfare, restoring programs that they, like California, had been forced to cut?
By Melissa Fernley
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