North Dakota can cut taxes to boost economic growth

Last month, I noted that a hit to the extractives sector has crippled North Dakota’s economic recovery. I concluded by saying that:

There are two things to take from this: First, we need to identify the causes of this hit to the extractives sector in the United States and North Dakota specifically and fix them. Second, North Dakota’s policymakers need to look at what they can do in terms of state policy to get the economy back on track.

The hit, as we noted in our 2022 report “Energy Leadership,” is down to the Biden administration’s war on American energy production; Specifically, my colleague Sarah Montalbano writes, Keystone XL pipeline cancellation, suspension of new oil and gas lease issuances on federal land, blocking the Dakota Access Pipeline, and stricter EPA emissions rules.

Clearly, these harmful federal policies need to be reversed. But what can North Dakota’s policymakers do in the meantime to boost the state’s economy?

I’ve written before that “A state government can influence the state’s economic performance in two areas. The first is fiscal policy, taxes and spending. The second is regulatory policy.” Regarding the first, I’ve also written previously that in a 2012 review of the literature measuring the impact of taxes on economic growth, economist William McBride concluded:

…that there are not a lot of dissenting opinions coming from peer-reviewed academic journals. More and more, the consensus among experts is that taxes on corporate and personal income are particularly harmful to economic growth, with consumption and property taxes less so. This is because economic growth ultimately comes from production, innovation, and risk-taking.

As Alex Durante of the Tax Foundation noted in 2021, “many papers have been written since, some using more sophisticated empirical methods to identify a causal impact of taxes on economic growth.” Reviewing this this new evidence, Durante finds that it confirms:

…our original findings: Taxes, particularly on corporate and individual income, harm economic growth.  

Even more recently, Timothy Vermeer, also of the Tax Foundation, reviewed the empirical research and found that these studies:

…broadly conclude that tax changes generate significant behavioral responses from individuals. They also largely indicate that tax increases can generate increased revenue for government but often at the expense of economic growth and mobility for taxpayers. Conversely, tax cuts tend to produce short-lived revenue decreases while promoting long-term economic growth.

Where regulatory burdens can be reduced they should be, as a general rule. But, in looking at what they can do to help their economy weather the Biden administration’s onslaught on American energy production, North Dakota’s policymakers should also be looking at state taxes. A state’s prosperity isn’t solely a function of its tax rates, but these are one of the factors that the government can control.