Income tax relief is good policy
Rep. Craig Headland
Chairman of the House Finance and Tax Committee
In 2010, voters passed a constitutional amendment establishing the Legacy Fund. Since then, 30% of oil and gas production taxes have been deposited in a fund which the State Investment Board then invests. The goal of the Legacy Fund was to set aside some of the revenue we take in from oil production so that if the oil industry were to slow down, we would have a steady, dependable revenue stream from the earnings of the Legacy Fund investment. We barred spending any of the Legacy Fund earnings for the first seven years to allow the principle to build up.
Now, in 2019, the legislature has the opportunity to make our mark on North Dakota history by allocating those Legacy Fund Earnings to provide income tax relief. What better legacy could we leave our children and grandchildren than that of a lower tax burden?
Historically, significant increases in revenue have led to expansion of government. If the money flows unchecked into the general fund, it will undoubtedly be used to fund government programs and expand the role of the state in its citizens’ lives. For this reason, it makes sense to devote half of the earnings to tax relief, preventing it from being used to fund more government. In all fairness, some of the proposed projects are good ideas. There is a place for using the earnings to fund Legacy Projects, and that is why this bill leaves half of the earnings in place for such projects.
Critics of this bill often use their infamous three-legged stool argument, arguing that our state’s revenue pool balances on the three legs of income, property, and sales tax. They say this bill will essentially cut off one of the legs, causing the North Dakota revenue stream to become unstable. In reality, this bill doesn’t actually eliminate one of those legs, but instead strategically replaces it. This bill is a measured, responsible approach to tax relief because it simply replaces income tax revenue with revenue from Legacy Fund earnings. Every bit of the income tax revenue currently taken in is being replaced, but from a source that isn’t the taxpayers’ pocketbooks.
Other critics have claimed that in a state where most of our revenue comes from the volatile agriculture and energy sectors, this bill will exacerbate our boom or bust economic swings. Since the Legacy Fund earnings come from a diverse, professionally managed portfolio rather than directly from commodities, they are actually less subject to market whims than most of the state’s other sources of revenue.
Nationwide data proves that people move to states with low or no income taxes. Our state currently has more open jobs than unemployed people, and this workforce shortage is one of the most significant challenges facing North Dakota businesses. Eliminating income tax could set North Dakota apart from the forty states that currently assess income taxes on their residents and businesses. Both Wyoming and South Dakota have already eliminated their income tax and this policy is needed in North Dakota as well in order to level the playing field and attract talented workers to our state.
As Chairman of the House Finance and Tax Committee, I’m proud to sponsor this bill. The Chairman of House Appropriations and the House Majority Leader also signed on to the bill. House Republicans are fighting for tax relief so that North Dakotans can keep more of their own money.