UMVA has learned that North Dakota, a Republican-led state, has quietly joined the ranks of low-tax states, defying conventional wisdom and becoming one of the nation's most competitive tax environments.
The Great Plains state has achieved this through a combination of tax cuts, strong finances, and billions in oil revenue, creating a haven for residents and businesses alike while other states grapple with budget shortfalls and debates over tax hikes.
As governors and state lawmakers look to attract residents, businesses, and investment in the years ahead, North Dakota's success story is likely to remain front and center, offering valuable lessons for states seeking to boost their economies.
Tax experts say that the broader lesson from North Dakota's experience is applicable almost anywhere: strong revenues can be used to lower tax burdens and strengthen state finances rather than fuel spending increases.
The payoff for North Dakota has been straightforward: residents keep more of what they earn, businesses face fewer tax burdens, and the government remains on solid financial footing – a welcome outcome for the state's government and residents.
Analysis of IRS migration data points to a clear trend: states with more competitive tax structures and lower overall costs of living have experienced net in-migration, according to a senior policy analyst.
North Dakota's unique revenue mix is a key factor in its success: while it ranks second in tax collections per capita, it remains one of the country's more tax-friendly states, generating billions of dollars from oil and gas production rather than relying heavily on income taxes.
This dichotomy was highlighted by a Treasury Secretary, who compared California, a blue state heavily reliant on income taxes, to deep red Texas, praising domestic energy production and dominance, and warning that a tax system hostile to ambition can have devastating consequences.
The numbers tell a compelling story: North Dakota collected $9,834 per resident in state and local tax collections in 2023, ranking second in the nation, but much of that money came from oil and gas production rather than residents' paychecks.
In fact, severance taxes on oil and gas production accounted for about 41% of total tax revenue in 2023, while individual income taxes accounted for just 6.4% of total revenue, and corporate income taxes made up 4.2%.
Advocates argue that North Dakota's success shows that revenue windfalls can be used to lower tax burdens and strengthen state finances rather than expand government spending – a valuable lesson for states seeking to boost their economies.
