AFTER much debate, a conservative state dominated by Republicans has rejected elimination of a major tax. We're not talking about Oklahoma's effort to repeal the state income tax, but North Dakota's opposition to property tax repeal.
Thanks to a boom in oil and gas drilling, North Dakota has the nation's second-lowest unemployment rate and state coffers are overflowing. Revenue surged 44 percent last year. In response, an initiative was submitted to end local property taxes, potentially saving citizens $800 million. Under the proposed constitutional amendment, state funding would have made up the difference for local governments.
The measure was predictably opposed by tax consumers, but also drew opposition from those who would seemingly benefit. The North Dakota Stockmen's Association opposed the measure even though ranchers were facing higher property taxes as land prices increased. Like Oklahoma, North Dakota experienced an oil boom in the 1980s that turned bust. Memories of that event made voters wary of eliminating a revenue source if it meant overdependence on others, preferring a diversified tax structure. In the end, more than 76 percent of North Dakota voters opposed the initiative.
A similar scenario played out in Oklahoma this year when Gov. Mary Fallin called for phasing out the state income tax. While special-interest pleading played a role in the defeat of the plan, so did concern that it would leave Oklahoma dependent on only a few volatile sources of revenue instead of spreading the burden across multiple tax streams.
Talk of repeal was soon jettisoned and replaced by talk of restructuring or straightforward rate reduction. Eventually, even those discussions were abandoned because no agreement could be reached. Oklahoma's income tax rate went unchanged.
The outcome of the tax debate in both states may have been unexpected, but not inexplicable. “Conservative” also means “cautious.” While voters in both Oklahoma and North Dakota are politically conservative and support low levels of taxation, they're also skeptical of dramatic change and prefer stability and predictability from government. Voters are aware that government action often leads to unintended consequences. Therefore, they prefer well-vetted plans to dramatic change, even in the area of taxation.
The comparison between the two states has its limits. North Dakota didn't authorize a “rainy day” fund until 2010. Oklahoma has had one since the 1980s, and officials have announced it may soon hold a record $600 million. Also, Republican legislators in North Dakota cut income taxes in their most recent session (they meet only once every two years).
At the start of 2012, North Dakota's personal income tax system had a top rate of 3.99 percent, compared with 5.25 percent in Oklahoma. So North Dakotans supported income tax cuts even as they opposed full repeal of the property tax.
The lesson of the Oklahoma and North Dakota debates is not that citizens are rebelling against tax cuts. The lesson is that citizens want sensible tax policies that allow for lower rates without putting all the state's eggs in one revenue basket.