Time To Cut Taxes?

Here’s a quote from a well-known North Dakota politician:

“Starting next year, we could suspend the individual and corporate income tax for a one-year income tax holiday and still have enough money to meet our obligations. North Dakota has a surplus so large it isn’t just a cushion, it is a mountain of pillows.”

Here’s the reaction of the editor of the Bismarck Tribune in a subsequent editorial:

“If the state can get along without collecting an income tax for a whole year, what justification is there for collecting it? If government doesn’t need to the money it ought to leave it in the pockets of the people.”

Does that sound like it could have come just this week?  Well, guess again. The politician was Byron L. Dorgan, and he said it on November 5, 1976. The Tribune editor was John Hjelle, and he printed his editorial response to Dorgan a couple days later.

And you thought it was some conservative in 2014 spouting off about tax cuts, didn’t you?

Aha.

Gotcha.

A little (not a lot) of history. On November 5, 1976, Dorgan had just been elected to what was to be his last term as North Dakota Tax Commissioner. He was at the beginning of what was to be his long peak of popularity, and he had defeated somebody named Kermit Schauer (how’s that for a forgettable opponent?) on the no-party ballot by a margin of 210,311 to 54,968, almost four to one.

His remarks were made in response to a question about what he saw ahead during his next four years as Tax Commissioner. North Dakota was prospering at the time, thanks to a very strong farm economy from 1973-75 (the first $5 wheat in the history of the state, I think, had come in 1974, after a big Russian grain deal, but it didn’t last), and the North Dakota Office of Management and Budget was predicting a $175 million dollar budget surplus as the 1977 Legislature was preparing to meet.

Dorgan said that a one-year income tax holiday would cost the state about $70 million. But if you read his statement carefully, you’ll notice that he said the state “could” have a tax holiday. Not “should.” That’s Byron Dorgan, the most astute politician, with the possible exception of Kent Conrad, the state has ever known.

Just a few days earlier, the voters of North Dakota had voted themselves a sales tax cut. Bismarck businessman Robert McCarney had led a petition drive for a successful initiated measure that cut the state’s sales tax from 4 per cent to 3 per cent, a tax cut of $32 million.

Dorgan pooh-poohed the McCarney-led sales tax cut, saying that if North Dakotans wanted a REAL tax cut, they could just get rid of the income tax for a year. Dorgan’s arch-nemesis, House Republican Leader Earl Strinden (he was on a two-year hiatus from his title of Majority Leader because the House was tied 50-50 between Democrats and Republicans that year, so there was no majority) didn’t think much of the idea, and nothing came of it.  The 1977 Legislature did not pass a bill for a tax holiday, and the sales tax did not remain at 3 per cent for long.

But the real story is that there was indeed a serious discussion of whether or not we should be collecting taxes we didn’t need. Which has implications today. Because we sure don’t need to collect as much in taxes from North Dakotans as we’re taking in right now. Just like in 1976, we “could” grant a one-year income tax holiday and still be able to pay the bills. The numbers are just bigger now.

But we probably won’t do that. What we SHOULD DO, though, is what McCarney and the North Dakota voters did in 1976—cut the sales tax. Cutting the sales tax from its current 5 per cent to 4 per cent is a true middle class tax cut. It would cost the state about half a billion dollars. We can afford that. If I were running for office this year, that’s what I’d be campaigning on. Bob McCarney too. And for the first time in his life, Byron Dorgan might even agree with Bob McCarney.