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Port: Using the Legacy Fund to eliminate income taxes is an idea worthy of debate

Rob Port

MINOT, N.D. -- I’d very much like to live without income taxes.

That’s not just a personal desire. One of the biggest challenges to stability and prosperity here are labor shortages and an economy too dependent on commodity-driven industries.

Agriculture and energy are great, but it’s a challenge to ride those ups and downs.

Eliminating income taxes would be boon in the ongoing fight to bring in new businesses and new workers.

You’ll hear some opponents of eliminating income taxes say our rates are, relative to other states, quite low. It’s true, but the forecast for combined individual and corporate income tax collections in the coming biennium is nearly $1 billion (mostly from the individual tax).

Eliminating those taxes would mean $1 billion stays in our pockets.

That’s nothing to sneeze at.

Yet how would we account for that $1 billion in lost revenue?

Do we pay a higher sales tax? Do we cut budgets? I don’t sense a lot of a lot of appetite for either.

Also, are we doing ourselves any favors by making our state budget dependent on a narrower tax base made up mostly of the sales tax? A revenue source which history has shown to be extremely volatile?

These questions are why I’ve been hesitant to support proposals to eliminate income taxes in the past.

State Rep. Craig Headland, a Republican and chair of the Committee on Finance and Taxation, may have the solution.

What he proposes is using earnings from the state’s Legacy Fund to essentially replace income tax revenues in the budget.

It wouldn’t happen all at once, as my colleague John Hageman reports. Instead as the fund’s earnings increase, the income tax would slowly go away.

I should note here that the Legacy Fund has two sources of revenues.  

One is the monthly deposits of oil tax collects transferred into the fund per the state constitution. These ranged from $45.7 million to over $70 million in 2018.

The other is the interest earned from the fund’s investments.

Under Headland’s plan, those oil tax collections would continue to grow the fund’s principal, while the earnings would be used to replace the income tax.

It’s intriguing, though based on some quick math the process would take a while.

As I mentioned, income tax revenues represent nearly $1 billion in biennial revenues.

Last year it was reported the Legacy Fund earnings had just topped $1 billion since inception.

Also, Headland’s plan would probably mean Legacy Fund earnings couldn’t be used for other proposals. Such as the research funding the presidents of UND and NDSU have been promoting, or the infrastructure bonding fund a group of lawmakers

Still, this may be the first proposal for the Legacy Fund which fulfills its original mission to benefit the state as a whole. I hope lawmakers give it serious consideration, though I imagine supporters will face headwinds from all the various interests with their own ideas on how to spend those funds.

Rob Port, founder of SayAnythingBlog.com, a North Dakota political blog, is a Forum Communications commentator. Follow him on Twitter at @RobPort.

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