North Dakota move toward flat-tax draws national attention to state

Even though it’s still a work in progress, the push by North Dakota lawmakers to cap and ultimately phase out the state income tax has already attracted the attention of pundits and politicians across the country. North Dakota state senators have under consideration three bills passed by the House that would establish a flat tax of 1.5 percent or 1.99 percent, plus a measure to end the income tax altogether a few years down the road.

Americans for Tax Reform threw its support behind the legislation by testifying at legislative hearings on the bills.

The headline bill for North Dakota taxpayers is House Bill 1158, which would install a flat income tax rate of 1.5%, and set a relatively high income threshold before someone owes income tax at all. The bill, sponsored by Rep. Craig Headland, has broad support, including from Governor Burgum and Americans for Tax Reform.

This legislation would give North Dakota the lowest flat tax rate in the nation.

Not surprisingly, ATR enthusiastically endorses the effort to make the state the second Dakota to eliminate the state income tax altogether.

Not content with that potential distinction, the House also approved House Bill 1425, which would allow for the income tax to be gradually eliminated as the state collects excess revenues from taxpayers.

This approach, often referred to as “revenue triggers,” puts taxpayers first. Rather than the state taking in too much money and then spending that money to grow government, the tax burden is permanently reduced.

North Dakota’s momentum for tax-cutting has also gotten a boost from the Wall Street Journal in an editorial aptly titled “A Flat Tax in Fargo? You Betcha.” The column highlighted North Dakota GOP Gov. Doug Burgum’s efforts to make the state more competitive.

The bill “would put us on a path toward eventually zeroing out our individual income tax,” Mr. Burgum told the House finance committee in January. “We compete for energy workers. Alaska, Texas and Wyoming are three of those eight states that already have zero income tax, and of course our neighbor right next to us in South Dakota.” This is a good way to think about it, which shows Mr. Burgum’s background as a businessman and entrepreneur.

The paper took a back-handed swipe at the sky-high tax rates in “big-city Minnesota” in the process, while giving North Dakota kudos for returning the state’s surplus to taxpayers, rather than spending it on bigger government.

Credit Mr. Burgum and the state House for pushing to get North Dakota on a path to zero, and with any luck the Senate will agree by acclamation. The state could afford to go faster. The Governor told the House that the state’s finances are in “perhaps the very best shape in our 123-year history.” Revenues to the general fund are running 23% ahead of forecast. The Legacy Fund, a pot of money filled by a share of oil taxes, has surpassed $8 billion.

The taxpayer-friendly reforms are expected to make North Dakota even more attractive for business, especially companies considering relocation from high-tax states like Minnesota.