Governor Burgum and a Republican Lawmaker Want to Exempt Military Pay and Pensions From State Income Taxes and It’s a Solid Idea

North Dakota has thousands and thousands of military members, both active duty and retired, living in our state.

North Dakota has a chronic labor shortage.

North Dakota is also one of just eight states which still fully taxes military pay to retirees.

Governor Doug Burgum, along with state Rep. Shannon Roers Jones (R-Fargo), each aim to kill those three “birds” with one stone.

Or, er, two stones I suppose.

Burgum is proposing an exemption from state income taxes for military pay to retired service members.

Roers Jones, meanwhile, wants to exempt pay to active duty military members.

Let’s face it, we don’t compensate the men and women of the armed forces in a fashion that’s anywhere near commensurate with what they give us with their service. What they risk, and what they sacrifice, is enormous. If we can leave a little extra money in their pockets, that’s a good thing on its own.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]We should do this for no other reason than because it’s the right thing to do for the military. That there are very economic benefits for our state too is just gravy.[/mks_pullquote]

But an added benefit is that, in doing so (particularly for retired military), we may encourage more of those men and women to continue living in our state after their military service is over. They could start businesses here, or take jobs and help address the aforementioned labor shortage.

This seems like a win-win, but what’s the cost? I reached out to Burgum spokesman Mike Nowatzki and got some details.

Their estimate, by way of the state Tax Department, was a $5.8 million loss in revenue per biennium.

Of that figure, about $3 million would go to the roughly 6,000 retired military members in the state, or their surviving spouses, with the other $2.8 million going to the roughly 5,100 active duty military members.

The latter would apply “to payments for service as an active or reserve member of the U.S. armed forces or the National Guard, but not civilian employees of DOD,” Nowatzki told me.

“Worth noting that these are estimates of lost tax revenue on military income, but it doesn’t account for potential offset from additional tax revenues that may be collected if this change results in additional workforce for ND,” Nowatzki added.

A fair point, though even setting that aside for a moment, the cost is minimal compared to the potential good this initiative could do.

North Dakota’s income tax is very low already. It’s doubtful that an exemption is going to be the primary reason any retiring service member has for staying in North Dakota. And we should remember that this exemption is only for military pay, not any other income these folks may have.

But this could be an important factor in keeping people in North Dakota. Someone planning for a life after the military could know that their retirement pay will go farther in our state, even as they consider the plentiful opportunities available in our job markets.

The Legislature has defeated bills similar to this in the past, and normally I’m not in favor of carve outs which narrow the tax base, but the military is something of a special case.

We should do this for no other reason than because it’s the right thing to do for the military. That there are very economic benefits for our state too is just gravy.