N.D. officials plan offset to federal tax change

BISMARCK — North Dakota lawmakers and Tax Commissioner Cory Fong promised Tuesday to take steps to ensure that married couples don’t pay more in state income taxes next year if Congress allows some federal tax cuts to expire.

Among the changes that may happen at year’s end is a decrease, from $11,400 to $9,500, in the standard federal tax deduction for married couples who file a joint tax return. The amount is indexed to inflation and typically changes each year.

North Dakota’s state income tax rates are applied to a taxpayer’s federal taxable income. If the deduction is reduced, more of a couple’s income will be subject to state income tax, Fong said. The change would affect more than 83,000 couples, and raise their state income tax bills by $36 to $94 annually, with an average impact of $40, he said.

The increase would offset state tax initiatives recently approved by the Legislature, including a cut in state income taxes and subsidies for local schools to use in lowering property tax rates, Fong said.

“We’ve done what we can to provide some relief to our citizens, and we’re not going to stand back and watch that be negated, in some cases, by the act of the federal government and Congress,” Fong said.

Fong, a Republican, is running for re-election as tax commissioner this fall.

His Democratic opponent, Cynthia Kaldor, said she believed Congress would not allow the standard deduction for married couples to decline, and said Fong was making “much ado about nothing.”

“There are a lot of real issues out there. Do I think this is one of them? No,” Kaldor said. “I’m not so sure this is a good issue to make the citizens of North Dakota worry about.”

The debate in Congress about tax cuts is primarily about the income levels they should apply to, Kaldor said.

“I don’t think the tax cuts are going to go away, not right away,” she said.

Fong held a news conference Tuesday at the Capitol with the chairmen of the Legislature’s taxation committees — Rep. Wes Belter, R-Leonard, and Sen. Dwight Cook, R-Mandan — and Rep. Mike Nathe, R-Bismarck, to discuss possible state tax changes if a package of federal tax cuts expires at the end of the year.

Congress has been debating whether to extend some or all of the tax reductions, which were pushed by former President George W. Bush.

Fong said single taxpayers would not be affected by the reduction in the federal standard deduction for married taxpayers who file a joint return. A handful of married taxpayers who file separate returns might be affected, he said.

He suggested that the situation could be remedied by allowing married couples who file a joint return to subtract from their federal taxable income the same amount that would be taxed because of the reduction in the standard deduction.

“It will be a very simple calculation,” Fong said. “There will not be a separate schedule, there will be no separate forms.”

A decade ago, North Dakota’s income tax was directly tied to the federal tax system. Taxpayers paid 14 percent of what they owed in federal income tax as their state income tax.

The Legislature severed the link in 2001, substituting five tax brackets for the single rate and applying them to federal taxable income.

Fong said devising the state’s own schedule for taxable income — which may have avoided the looming tax problem for married taxpayers — would make the state’s income tax system more complicated.

Cook said he believed questions about the nation’s future federal tax policy has been inhibiting growth.

“You take this uncertainty that goes with today’s tax environment, you couple that with the uncertainty of a health care bill, the uncertainty of clean air legislation that is pending ... and, quite frankly, it amazes me that our economy in North Dakota is doing as well as it is,” the state senator said.

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