House Does End-Run Around the Senate To Pass Income Tax Cuts Anyway

Yesterday the potential for personal and corporate income tax cuts looked pretty grim. The Senate took a $152 million tax cut proposal sent to them by the state House and watered it down to just a $33 million reduction, and then killed it anyway.

Clearly, the Senate has lost its appetite for income tax cuts, but here’s the thing: Earlier in the session the Senate passed an income tax package of their own – SB2349 – consisting of $108 million in personal and corporate income tax reductions (according to the most recent fiscal note).

So today the House took up that bill and passed it. And, since they didn’t make any changes to it, it doesn’t have to go back to the Senate. The bill now goes straight to Governor Jack Dalrymple for signature.

It wasn’t an easy process. The Republican majority spent almost an hour fighting Democrat procedural maneuvers on the floor to divide the bill. If they’d been successful, the bill would have had to go back to the Senate for concurrence, where it would likely have died given yesterday’s vote.

But they weren’t successful. The bill passed on a 59-32 vote, and North Dakota taxpayers will pay lower income taxes in yet another biennium.

And this makes sense. While falling oil prices have lawmakers spooked, a proposed reform to the oil extraction tax would do away with the “big trigger” that is set to cost the state billions in the next biennium if it hits. It would replace the trigger with a move to a permanent flat tax that’s about 2 percentage points lower than the current tax.

In the short term the industry gives up some tax relief in this time of lower oil prices in exchange for a lower long-term tax, and the state gets more revenue certainty going forward. Instead of the extraction tax getting eliminated for 11 months in the next biennium, which is what the current revenue forecast lawmakers are using for budgeting says will happen, the tax will just go down two percentage points.

That sounds like good compromise which leaves plenty of revenue room available for income tax relief.