North Dakota is at it again! 2015 will be yet another year in which the state sees lower rates. Last Thursday, Governor Jack Dalrymple signed legislation (SB 2349) that will reduce both individual and corporate rates retroactive to January 1, 2015. Individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates are reduced by approximately 10 percent across-the-board, while corporate income taxes are reduced by approximately 5 percent across-the-board. Brackets before and after the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cut are shown in Table 1 below, in addition to estimated fiscal impact.
|
Tax |
Pre-SJ 2349 Rates & Brackets |
Post-SJ 2349 Rates & Brackets |
Fiscal Impact |
|
Individual Income Tax |
1.22% > $0 2.27% > $36,250 2.52% > $87,850 2.93% > $183,250 3.22% > $398,350 |
1.10% > $0 2.04% > $37,450 2.27% > $90,750 2.64% > $189,300 2.90% > $411,500 |
-$87 million |
|
Corporate Income Tax |
1.48% > $0 3.73% > $25,000 4.53% > $50,000 |
1.41% > $0 3.55% > $25,000 4.31% > $50,000 |
-$21 million |
Note: Bracket amounts shown are for single taxpayers.
Source: North Dakota Senate Bill 2349.
In total, the legislation is predicted to reduce biennial revenues by $108 million (see the fiscal note here).
North Dakota has cut tax rates several years in a row, with the recent trend beginning in 2012. However, there have been several instances of isolated tax cuts in the state’s recent history. For example, individual rates were reduced in 2009, and corporate rates were decreased in 2005, 2008, and 2010. Further, the number of corporate tax brackets was reduced in both 2005 and 2010. (See our history of state individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rates from 2000 to 2014 here and here, respectively.)
SB 2349’s enaction occurred just one week after another piece of amended House legislation (HB 1223) failed to make it out of the Senate (see legislative history of HB 1223 here). That bill would have cut both individual and corporate income tax rates by 5 percent across-the-board.
How, then, did an even bigger cut occur? As reported by Tax Analysts early today (subscription required):
Before the vote [of the now dead HB 1233], Sen. Ray Holmberg (R), chair of the Senate Appropriations Committee, noted that the budget for the fiscal biennium ending in 2017 has a $66 million deficit. He said that in a time of declining oil prices, the state needs to "take a break" from income tax cuts…
But on April 17, the North Dakota House, which…wanted a 10 percent reduction across the board, found SB 2349, the only income tax cut bill still alive.
The Senate had passed it 33 to 14 on February 18, but the House did not vote on it then in hopes of getting a bill with a larger corporate tax cut. But in the absence of anything else, the House belatedly voted on SB 2349, passed it 59 to 32, and sent it to the governor.
More on North Dakota here.
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