Crush North Dakota’s income tax

On Monday, I wrote about how North Dakota’s policymakers should look to the tools they have — notably control over state taxes — to boost economic growth in the face of the Biden administration’s war on American energy production, which is hitting the state’s economy particularly hard. Yesterday, I outlined some reforms which could improve the state’s sales and corporate taxes.

What about North Dakota’s other taxes?

Income tax

Census Bureau data show that, in 2021, sales and corporate taxes accounted for 28.3% of North Dakota’s “General revenue from own sources.” Individual income taxes accounted for just 8.0%, well below the median share across the fifty states of 25.4%, as Figure 1 shows.

Figure 1: Share of state government general revenues by source, 2021

Source: Census Bureau

This relatively small share is only likely to decrease further following the income tax cuts enacted last year, which effectively eliminated the individual income tax for 3 out of 5 North Dakota taxpayers. At the time of its passage, Gov. Burgum said the legislation “moves us further down the path toward becoming a zero-income-tax state,” an ambition he reiterated in his State of the State address in January. North Dakota should pursue this goal and eliminate its income tax.  

In 2010, seven states had no state income tax – Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. From then until 2023, the median real growth of Gross Domestic Product (GDP) in these states was 34.8% compared to 24.1% for the 43 states that did have income taxes and 33.3% for the United States overall, as Figure 2 shows.

Figure 2: Median real GDP growth, 2010 to 2023

Source: Bureau of Economic Analysis

As Figure 3 shows, in 2010, the seven states without an income tax accounted for 17.0% of GDP, but since then they have accounted for 26.2% of GDP growth in the United States.

Figure 3: Share of US GDP in 2010 and share of US GDP growth 2010 to 2023

Source: Bureau of Economic Analysis

This is both a cause and an effect of people flocking to no income tax states. Figure 4 shows the total net domestic migration for 2010 to 2023 as a rate per 100,000 of the population in 2010 for both states with an income tax and those without. We see that states with an income tax saw a net outflow of residents to other parts of the United States over this period of 1,764 per 100,000 of the 2010 population while states without an income tax saw a net inflow of 8,027 per 100,000 of the 2010 population.

Figure 4: Total net domestic migration 2010 to 2023 per 100,000 of the 2010 population

Source: Census Bureau

These figures are strongly indicative that states without income taxes see superior economic growth to those states with them. Given the economic challenge facing North Dakota, this shows that the state’s policymakers should follow Gov. Burgum’s lead and abolish North Dakota’s income tax.