North Dakota officials propose flat income tax rate, eliminating individual income taxes for most taxpayers
The plan would adopt a flat state individual tax rate of 1.5% that would effectively eliminate income taxes for almost 60% of taxpayers.
BISMARCK, N.D. — Gov. Doug Burgum and other officials announced a plan to save North Dakota taxpayers an estimated $250 million annually by switching to a single flat rate that would eliminate the individual state income tax for almost 60% of taxpayers.
The plan, outlined Tuesday, Aug. 24, would effectively eliminate the state’s individual income tax for more than 388,000 North Dakota taxpayers whose adjusted gross income is $54,725 or less for single filers or $95,000 or less for married couples filing jointly.
If approved by the North Dakota Legislature, which convenes in January, the tax relief plan would take effect for the 2023 tax year and would group North Dakota among 10 states with a flat income tax rate.
Burgum touted the proposed flat tax rate of 1.5%, which he called “permanent, meaningful relief,” as the lowest in the nation that would enhance the state’s business competitiveness and attract workers.
The proposal calls for eliminating the lowest state income tax bracket for individuals, which officials said would help working-class taxpayers. Those who continue to pay the state income tax would see reductions ranging from 26% to 48%.
“Every North Dakota taxpayer will benefit from this,” Burgum said.
The state’s budgetary coffers are brimming at record levels, including a budget stabilization fund that had a balance of $724.1 million, the strategic investment and improvement fund that had a balance of $689 million and the Legacy Fund that had a balance of $8.2 billion, all as of May 31.
Revenues to date for the biennium are running 20.5% above forecast.
“Bottom line, the state’s doing extremely well,” Burgum said. “Now is the right time to provide meaningful, permanent tax relief.”
Passage of the income tax relief package would mean the state could not hoard as much cash and would place future restraints on the growth of state government, he said.
“It doesn’t make sense for the state to keep stockpiling more cash,” the governor said. “We need to get it back in the hands of the citizens.”
The proposed flat tax is the culmination of years of tax relief work, according to Lt. Gov. Brent Sanford. “It took a lot to get here,” he said.
“We’re at the point when we can afford to do this,” he said, adding that officials will strive to someday eliminate the state individual income tax. Last year, lawmakers passed a $211 million tax relief package for about 500,000 North Dakota taxpayers in 2021 and 2022 by providing an income tax credit up to $350 per year for individual income taxpayers, or up to $700 per year for married couples.
Over the years, state officials have provided more than $7 billion in property tax relief, some of it permanent, Burgum said, noting property taxes are levied by local governments, not the state.
Brian Kroshus, state tax commissioner, said that under current rates, 16.1% of North Dakota taxpayers pay no individual state income tax. Under the proposal, that would jump to 57%.
“No one goes backwards,” Kroshus said. “Everyone benefits.”
Rep. Craig Headland, R-Montpelier, chairman of the House Tax Committee, noted more states have moved to a flat tax but said North Dakota will stand out for having the lowest rate.
“With this bill, we will have the lowest flat tax in the nation,” he said, adding his goal is to bring the rate to zero.
Legislative leaders and other members of the House and Senate taxation committees attended the announcement, apparently reflecting broad support for the flat tax proposal. Republicans have supermajorities in both legislative chambers.