BISMARCK — The North Dakota House approved a plan to use earnings from the voter-approved Legacy Fund to replace state income taxes Thursday, Feb. 14, a week after Gov. Doug Burgum criticized the idea as bad policy.
The 61-31 vote sends the House Bill 1530, backed by Republican Rep. Craig Headland, who chairs the House Finance and Taxation Committee, to the Senate for consideration.
Supporters argued the bill would allow North Dakota to better compete with states that don’t levy income taxes, which includes South Dakota. They also said it would boost the state’s economy and attract residents.
The average individual state income tax liability in North Dakota is roughly $860 per return, according to the tax commissioner’s office. The state is expected to generate more than $900 million in individual and corporate income taxes during the two-year budget cycle that ends June 30.
“Just imagine that additional money flowing through the economy,” Headland said.
Critics said replacing income taxes wasn't the proper use of Legacy Fund, which has ballooned since voters created it in 2010 by setting aside 30 percent of oil and gas tax revenue. They also argued it would make the state more reliant on volatile commodity-based revenues.
Rep. David Monson, R-Osnabrock, invoked the “three-legged stool” of property, sales and income taxes that generally support government operations.
“This bill is going to work us toward cutting off that one leg,” he said. "If you cut that off and things go south with our oil ... you're going to end up with a two-legged stool. Two-legged stools don't stand very well by themselves."
Headland’s bill would divert half of the fund’s earnings each two-year budget cycle to an “income tax rate reduction fund,” as long as the transfer is at least $50 million. It's expected to take at least a decade to reduce the rates to zero and repeal individual and corporate income taxes, Tax Commissioner Ryan Rauschenberger previously said.
Burgum has pitched using $300 million in earnings for projects like the Theodore Roosevelt Presidential Library and Museum. Headland has said he didn’t intend to touch money for the governor’s proposals.
In a meeting with reporters last week, Burgum characterized the bill as a “little bit of Robin Hood stuff” because it would take taxes from one industry and spread it out across the state. He didn’t say whether he would veto it if it reached his desk.