There is a way to have property tax and income tax reductions
MINOT, ND — We are now in the height of election season, but just months after the vote, lawmakers are entering a new legislative session and some of the state leaders already have big plans for this session.
Governor Doug Burgum and a group of lawmakers have proposed major income tax reform. This would cut state tax brackets from half a dozen to two, with most filers falling into the lower bracket with a zero rate.
This means that most residents of North Dakota would pay no income tax. The top 40% earners would pay a very low rate.
Meanwhile, another group of lawmakers, including state Rep. Mike Nathe, a Bismarck Republican, are proposing property tax relief. They want the state to pick up the part of your property tax bill that goes to schools, and they would use interest income from the state’s $9 billion legacy fund to pay for it.
Both plans face political obstacles. The conventional wisdom is that few North Dakotans are bothered by our state’s already low tax rates. A much more common complaint concerns property taxes, we are told.
Yet property tax is a local tax levied by school boards, park boards, and city and county governments.
The Legislative Assembly has tried various stratagems to respond to property tax angst for decades. There is little evidence that they have had the intended impact.
Additionally, in 2012, voters rejected a ballot measure that would have eliminated the property tax in favor of state appropriations, and the most compelling argument at the time was that a shift from local budgeting to state budgeting would be the death knell of local control.
Yet, these hurdles aside, there is a way to achieve both plans.
Remember that both of these plans should be paid. The income tax plan would cost the state about half a billion dollars in revenue per biennium. The property tax plan would cost about $340 million per budget cycle.
Few lawmakers I’ve spoken to are confident we can do both next year. State coffers may be teeming with revenue right now, but these tax reforms would be something we will have to live with, even in lean times in the future.
What if we don’t do both now? What if we reform state income taxes first, returning about $250 million to our pockets a year, and postpone the property tax plan?
The delay would open the door to a new source of revenue to fund it. Namely, the Common Schools Trust Fund, which holds nearly $6 billion and launched $421 million in disbursements in the current biennium. In a few years, this constantly growing fund will produce enough income to pay for the property tax plan that Nathe and his colleagues are calling for.
We would use an Education Trust Fund to fund education, leaving Legacy Fund income for other purposes and paving the way for major income tax reform here and now.
Sounds like a win all around, doesn’t it?