North Dakota plans to cut taxes, will Minnesota follow?
While our legislature continues to argue on whether to have a special session, more states continue to offer much-needed tax relief. North Dakota is yet to be the latest.
According to news reports,
North Dakota Gov. Doug Burgum, State Tax Commissioner Brian Kroshus, House Tax Committee chairman Rep. Craig Headland and fellow legislators on Wednesday announced a landmark tax relief plan that would replace the state’s individual income tax rates with a single, lower flat tax, saving North Dakota taxpayers an estimated $250 million annually and eliminating the individual income tax burden altogether for nearly 60 percent of the state’s taxpayers.
Burgum, Kroshus and Headland unveiled the Relief for All plan during a Capitol press conference with Lt. Gov. Brent Sanford and members of the legislature’s House and Senate taxation committees, including Sen. Scott Meyer, Sen. Jordan Kannianen, Rep. Glenn Bosch and Rep. Jason Dockter.
Based on the current 2022 tax year, the plan would effectively eliminate the state’s individual income tax for over 388,000 North Dakota taxpayers whose adjusted gross income is $54,725 or less for single filers or $95,600 or less for married couples filing jointly.
Those with higher income levels would pay a flat tax of 1.5%, compared to current income tax rates that range from 2.04% to 2.9%, which translates to a reduction ranging from 26% to 48% in their state income taxes.
As I previously, wrote half of all states have cut income taxes between 2020 and 2021, and nearly all of these states already had lower taxes than Minnesota. So, our state has a lot of catching up to do.
Minnesota is an outlier
If North Dakota transitions to this single tax rate, it would mean that three out of four of our neighbors have reduced taxes between 2021 and 2022.
Iowa, which used to have a 9.8 percent corporate income tax — the same as Minnesota — will gradually reduce its rate to 5.5 percent. On individual income taxes, Iowa will gradually transition from a 9-bracket tax system to a flat rate of 3.9 percent. With a starting rate of 5.35 percent, Minnesotans at every income level will pay a higher income tax rate compared to all Iowans.
Wisconsin, whose top highest individual income rate is lower than Minnesota’s second-highest rate, also cut its second highest rate from 6.27 percent to 5.3 percent. Not to mention that while Wisconsin’s highest rate — of 7.65 percent — kicks in at incomes starting at $281,000 for single fillers, Minnesota’s top rate — of 9.85 percent — kicks in at incomes starting at just $171, 000.
Currently, North Dakota’s tax brackets range from 1.10 percent — for incomes between 0 and $40,500 — to 2.90 percent — for incomes over $445,000. With its latest proposal, the state’s top income rate will only be 1.5 percent. Minnesota’s top rate is nearly 6 times higher.
Out of our four neighbors, South Dakota is the only state that has not cut taxes, but that’s only because the state doesn’t have any income taxes, to begin with.
If nothing is done, Minnesota will be left behind
At this point, the question among Minnesota legislators should not be about whether to cut taxes or not, but about how much to cut taxes. We only risk being left behind if we do not get with the program.