
Charles Crane/MDN
Rep. Ben Koppleman, West Fargo, and economist John Phelan listen as Rep. Scott Louser, Minot, responds to a question from those attending the Crush ‘N’ Cap presentation held at the Knights of Columbus building in Minot on Thursday.
Dozens of Minot residents and supporters of property tax elimination gathered at the Knights of Columbus building in Minot Thursday, Aug. 8, for a presentation seeking the elimination of income tax and the introduction of caps for local government spending.
The “Crush ‘N’ Cap” presentation was delivered by John Phelan, an economist with the Center for the American Experiment, a Minnesota-based think tank. Phelan provided his economic analysis of North Dakota, which he said has been lagging in the years following the year prior to the COVID-19 pandemic, to federal policies impacting the inherent “economic geography” of the state. Phelan highlighted North Dakota’s gross domestic product, which is dominated by oil and natural gas extraction. Phelan shared data showing that the extractives sector in the state has diminished by 23.3% between 2019 and 2023.
“North Dakota is one of only four states whose economy is still smaller than it was in 2019 the year before the pandemic,” said Phelan. “It’s actually 2 percent smaller in 2023 than it was in 2019. This is essentially what sent us on thinking about North Dakota and what you can do.”
Phelan identified regulatory policy and fiscal policy as two areas state government can influence state economic performance, and honed in specifically on taxing and spending.
While he conceded no “magic button” exists that instantly causes an economy to rebound, Phelan said states which have eliminated state income tax have fared far better than even state’s like North Dakota which capture relatively little revenue from income tax. Phelan cited studies showing states without income tax experienced economic growth and attracted more residents. When pressed during the Q&A portion of the presentation on whether eliminating the income tax in North Dakota was worth the effort given how low it is, Phelan responded that if it is a “token tax” it might as well be eliminated.
Phelan then dug into data around nominal and real increases in average annual pay in comparison to property tax burdens, which lead to the second prong of the proposal regarding the capping of local government spending. Phelan said home prices have spiked in North Dakota in recent years, which in turn has increased the local tax burdens experienced by homeowners.
“I think the solution is to cap all local spending with the annual rate of inflation. You’ve got to pay for local services, but the amount of the tax you pay should be linked to the cost of inflation for those services. It should not be linked to what the Federal Reserve does with a printing press,” Phelan said. “If inflation goes up 2 percent a year, prices go up 2 percent a year, government spending won’t go up, and your taxes won’t go up.”
Phelan said mechanisms would still exist for municipalities to bring tax increases to the voters if they are needed for projects like schools through a referendum, maintaining a link between the provision for local services and the payment for them.
North Dakota Legislators Scott Louser, of Minot, and Ben Koppelmen, of West Fargo, joined Phelan for a question-and-answer session following the presentation, during which they both explained legislation they are individually preparing for the next legislative session should the property tax elimination measure be shot down by voters in November. Koppelman acknowledged that should the measure pass his proposal would be moot, but wanted to avoid a rush job to fill in the gap.
“One of the things I think we need to think about with the property tax measure is not whether we support it, because I think many of us do. We can’t control how a ballot works, so what if it doesn’t pass? In the past there’s some similar parallels to this where a measure hasn’t passed, and there’s not been enough time to develop a proposal for property tax relief or reform,” Koppleman said. “We need to deal with a fever pitch alarming situation that we have with our homeowners especially and property tax. We need property tax relief and we need it now for the primary residents of our state.”
Koppelman proposed an 80-90% in property tax for primary residents through a homestead tax credit, and reform how property tax on residential and commercial property to be based on the physical characteristics of property. Koppelman said by having local governments base the assessment on square footage, “we would be on equal footing.”
“How many square feet is our building? How much square feet is your land? Does it really matter if your house is built in 1960 and mine is built in 2020 and we both need the same police, fire protection and streets? I think not,” Koppelman said. “Why would we tax me more or you more depending on if we make it nice? If we continue to penalize repairing things and making them better, then we’re going to need more economic development and more renaissance zone- type stuff to repair the damage we’ve done from the inverse encouragement in the current system.”
Louser explained the bill he’s drafting for the next session, which would have the state pay the mandated 60 mills required for funding general education. The second element of Louser’s draft bill is a cap of local political subs on the balance of property taxes to a 3 percent increase.
“The 60 mill buydown would come at a cost of $680 million per biennium. We’re collecting a little under $340 million per year under 60 mills. In Minot, that would reduce the school portion of your property taxes by about 48% and overall by about 26% reduction in your property taxes,” Louser said. “The bond we passed for Minot North would stay local, so all those local decisions would stay local.”