North Dakota Democrat Tax Commissioner Candidate Proposes Flat Tax—Big Tax Climate Improvement

October 3, 2014

Scott Drenkard

Scott Drenkard

North Dakota is in an interesting place because of oil tax revenue; the budget surplus is $614 million and growing. But while other natural resource states often go without one of the major taxes, North Dakota has all of them, and they aren’t particularly well-structured. South Dakota, by contrast, doesn’t even have a corporate or individual income tax, and its sales tax rate is lower than North Dakota’s.

That’s why the tax commissioner race in North Dakota is one to watch. In the past few weeks, Jason Astrup, the Democratic-NPL candidate for tax commissioner, has announced a platform of a substantial income tax overhaul. His plan would flatten and simplify the individual income tax to a single bracket, while lowering the top rate from 3.22 percent to 2.52 percent. The exemption would be raised to $40,000 for singles and $80,000 for married filers.

Here’s how the plan would score in our State Business Tax Climate Index if it had been enacted last year:

2014 Index Rank With 2.52% Flat Tax
Overall 28 11
Corporate 22 22
Individual 38 10
Sales 21 21
Unempl. Insur. 19 19
Property 2 2

Currently, South Dakota ranks 2nd best on our State Business Tax Climate Index, and North Dakota ranks 28th, but under the Astrup proposal, North Dakota would move up to 11th overall. This plan is a common-sense step toward a simpler, more rational income tax code, and I’d love to see this kind of thinking carried over into conversations about the state's multi-bracket corporate income tax as well. For now though, kudos to Astrup on a well-thought out proposal.

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A 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.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

An 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.

A 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.