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McFeely: Yes, cut to oil tax has cost N.D. money

It's there in black and white. North Dakota Republicans lowering the oil extraction tax from 6.5 percent to 5 percent at the end of the 2015 legislative session has cost the state $235 million in revenue in the first 14 months since the new policy was implemented.

Figures provided by the North Dakota tax commissioner's office, first reported in detail by the NDxPlains blog, show it. The exact figure is $235,530,746. That's an average of more than $16.8 million per month.

Yet Republicans say changes made to the oil tax code were actually a massive tax hike on the industry. (Which, if you're keeping score at home, would be the first time Republicans not only admitted to, but embraced, a tax increase.)

Democrats maintain the changes were an unnecessary giveaway to oil companies and one of the reasons North Dakota felt so much budget pain in the 2017 session.

It has to do with legislative Republicans removing the so-called "trigger" on oil taxes while at the same time reducing the extraction tax.

The trigger was a mechanism that allowed oil companies to pay a lower tax when the price per barrel dropped below a certain figure for an extended period, meant to encourage production and exploration at times of low oil prices. The extraction tax is a tax paid on oil taken out of the ground.

They are two separate policy issues and were handled as such by previous legislatures.

The truth is that while the removal of the trigger—a decision supported by both parties, the oil industry and policy analysts because it adds predictability—prevented a huge revenue loss, the lowering of the extraction tax cost the state more than $235 million.

It's all in how one chooses to report the policy changes and the numbers.

Republicans say eliminating the trigger and lowering the extraction tax is one bundled decision and that together their changes resulted in more money coming in, a net total of $355.7 million between January 2016 and February 2017. That is accurate as far as it goes.

But treating two separate policy decisions as one is misleading. The legislature didn't have to lower the extraction tax while eliminating the trigger. It could've eliminated the trigger and left the extraction tax at 6.5 percent. Or lowered it by a smaller amount, knowing it faced a tough budgetary future. One had nothing to do with the other, necessarily. Republicans chose to treat it—and sell it to the public, then and now—as one issue.

The extraction tax cut cost the state $20.3 million in revenue in February alone, in the midst of a legislative session that ended with major cuts to higher education and other state services. That's why Democrats are crying foul. They wanted to eliminate the trigger and hold off on any change to the extraction tax until legislators could study the cost and effects of a cut.

We've since learned. More than $235 million and counting.

Readers can reach Forum columnist Mike McFeely at (701) 241-5379

Mike McFeely
Mike McFeely is a WDAY (970 AM) radio host and a columnist for The Forum. You can respond to Mike's columns by listening to AM-970 from 8:30-11 a.m. weekdays.
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