Lawmakers Propose Tapping into the Legacy Fund to Eliminate Income Tax

When the oil boom was ramping up, North Dakota began a rainy day fund, better known as the Legacy Fund.

It was voted in on the 2010 ballot. Since then, 30 percent of all oil tax revenue has been set aside, resulting in more than 5.5 billion dollars. 

The North Dakota Tax Commissioner says it’s like an endowment fund in the way it continues to grow over time.

15 percent of the fund is available for one time projects every legislative session, like the Presidential Library.
Tax Commissioner Ryan Rauschenberger adds, “So it’s very limited. What the voters passed, back in 2010, it was very clear that they wanted the principal to continuously grow. And only be able to access it when something is really important or really necessary.”

To date, money in the Legacy Fund has never been tapped into.

That could all change. Lawmakers are considering a plan to eliminate the state’s income tax, but it will come with a hefty price tag.

They say it could be possible by using the Legacy Fund. This is one of the most talked about proposals at the State Capitol right now. 

It’s a plan to take the income tax burden off taxpayers and corporations, and instead, place it on the potential success of the earnings from the Legacy Fund. 

However, it’s not that simple and not all legislators we spoke with, believe this is a good idea. 

Tax Commissioner Ryan Rauschenberger says the legislature has done a lot in the last ten years to reduce income taxes already. That’s why North Dakota has one of the lowest income tax rates in the nation.

The Tax Commissioner says, “And I’m all in favor of reducing income taxes as much as we can, and I’m not opposed to eventually eliminating income tax.”

He considers House Bill 1530 a measured approach because it would eliminate taxes over the course of 10 to 20 years.

Republican Representative Craig Headland shares, “Statistics show that nationwide, people are moving from high tax states to low tax states.”

Senator Dotzenrod sees it differently. He doesn’t believe getting rid of income taxes would make much of a difference overall, it would just put the burden elsewhere.

The Democratic Senator explains, “States that have no income tax generally have high taxes on property and they’re very dependent on sales tax, and expanding their sales tax in order to cover things.”

Right now, North Dakota is projected to collect about 930-million dollars between individual and corporate income taxes in the next two years.

Rauschenberger adds, “Really over 800-million of that is from individual income tax.”

That 930-million would have to come out of the Legacy Fund. But as Rauschenberger explains, there are two parts to the fund: the principal and then earnings.

He says, “The principal of the Legacy Fund is filled up with oil dollars. That keeps growing every biennium and unless there’s a special vote of the legislature to take a two-thirds vote, it keeps growing. So it’s protected Constitutionally.”

The earnings, on the other hand, is the money made after the Tax Commissioner’s office invests that principal fund in stocks and bonds. 50 percent of those earnings are what Republican Representatives want to put toward income tax.

Representative Headland adds, “What better legacy could we provide the next generation, but to have eliminated their income tax liability forever?”

Although Republican lawmakers think eliminating income tax this way could work, the question remains: Are the people of North Dakota asking for reduced income taxes?

In testimony against House Bill 1530, Representative Josh Boschee said the voters have continuously voted against ridding of income taxes.

Senator Dotzenrod explains, “Anytime it’s been on the ballot, the voters have supported the income tax system that we have.”

Senator Dotzenrod and Commissioner Rauschenberger say the state needs a steady tax base, like income tax.

The Senator explains, “I just don’t think there’s an appetite to put us in that position. I think we have an income tax that’s one of the lowest in the country, and the public generally accepts it.”

The bill is in the Senate now. Senator Dotzenrod says they haven’t had a hearing on it yet, but he does not expect it to pass.

Rauschenberger says we cannot rely on sales tax as a base because it is dependent on oil money, which he says fluctuates drastically every year. 

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