How Paternalistic is North Dakota?

created by Jeremy Jackson |

When we think of the state of North Dakota, we seldom imagine it as a modern-day Orwellian nanny-state, dripping with paternalistic policies created “in our best interest”. But just how paternalist is our state, and how do we compare to other states?

It turns out that a recent report by economists Russell Sobel and Joshua Hall (published by the Mercatus Center) provides scores and rankings for all 50 states based on how paternalistic their policies are. North Dakota ranks 10th overall in Freedom from Paternalism – meaning it has the 10th least paternalistic policies in the nation.

That isn’t a bad ranking. After all, there are 40 other states more paternalistic than us. But why settle for second (err, tenth) place?

The rankings weighted state policies in three main areas:
use of selective taxes (area 1), saint subsidies (area 2), and miscellaneous bans and restrictions (area 3).

North Dakota scored best in area 2: saint subsidies. This area ranks “government subsidies or tax deductions in favor of the consumption of goods that are viewed as being paternalistically ‘good’ choices.” Think of these policies as the ‘carrot,’ or positive reinforcement, used to influence individual behavior. In this area, North Dakota ranks 3rd (tied with 6 other states), representing the low amount of these types of policies.

North Dakota does worse in area 3: miscellaneous bans and restrictions. In this area, North Dakota ranks 13th. This area is measured using data on the presence of certain bans and/or restrictions. North Dakota’s ranking is driven by its policies on mandated recycling and beer keg restrictions.

North Dakota’s worst ranking comes in area 1: use of selective taxes, where North Dakota ranks 21st.  This area measures the “extent to which tax policy at the state level is consistent with paternalism in the sense that it does not rely on a broad-based sales tax.” That is, tax policies that target certain items in what is usually regarded as a “sin tax” (think, the ‘stick’). North Dakota receives low scores for its soda, beer, and wine taxes.

The state also loses points for the overall percentage of its sales tax that is selective versus uniform. In North Dakota, 28 percent of sales tax revenue comes from selective taxes, almost double that of the lowest state, Wyoming, at 15 percent.

Selective taxes are problematic because they change the relative price of goods, which alters individual behavior by reducing consumption of highly taxed goods and increasing consumption of lesser taxed goods. Economic theory shows that such taxes directly reduce consumer welfare.

North Dakota is the least paternalistic state in the region and the 10th least paternalistic state in the U.S., but there is still room for improvement. The state’s targeted taxes on soda, beer, and wine are surprising and reflect a tendency by the government to impose discriminatory taxes. When it comes to state tax policy, lawmakers should focus more on economic theory and less on perceived morality. 


Meet the Author

Jeremy Jackson is the director of the Center for the Study of Public Choice and Private Enterprise (PCPE) and an associate professor in the NDSU Department of Agribusiness and Applied Economics. Read his bio.

jeremy.jackson@ndsu.edu


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