Rauschenberger: Federal tax cut will have 'minimal' effect on ND tax collections

Dec 22, 2017

State tax commissioner Ryan Rauschenberger (R).
Credit ND Tax Dept.

North Dakota’s Tax Commissioner has been analyzing the new federal tax cut bill – and what kind of effect it might have on the state’s income taxes.

Ryan Rauschenberger said he’s been focusing his analysis on the changes to the federal individual income tax. He said he’s especially been looking at the doubling of the standard deduction and the removal of dependent exemptions.

"We expect the individual income tax revenue effects to be fairly minimal," Rauschenberger said. "It almost comes out as a wash."

In fact, Rauschenberger said, there will be a marginal increase in the second year of the 2017-2019 biennium.

"We're looking at a 1.5 percent increase in state individual income tax," Rauschenberger said.

He attributes that mainly to the ending of some of the exemptions.

"You have a doubling of the standard deduction, which lowers taxable income in North Dakota," Rauschenberger said. "But then you have the removal of the dependent exemption, which increases taxable income."

Rauschenberger said the federal government has gone more to tax “credits,” especially on child care.

In the 1980s, when the Reagan tax cuts took effect, there was much more of an effect on state collections – because state tax rates were “coupled” with the federal income tax – in that, taxpayers paid a percentage of their federal tax liability.

"In 1986, the state did implement some legislation to adjust state tax rates to take into account federally," Rauschenberger said. "In the early 2000s, we as a state under Gov. John Hoeven and the Republican legislature. decoupled even further."

Rauschenberger said if the state hadn’t de-coupled, the conversation would be much different today.