Lowering your taxes in the N.D. Legislature

Benjamin Franklin famously said, "in this world, nothing is certain except death and taxes."

While death isn't discussed in this Straight Talk episode, your host, Emmery Mehlhoff does talk taxes with Representative Craig Headland, who serves as chairman of the House Finance and Taxation Committee.

Serving on the Finance and Taxation Committee wasn't his first choice, but Rep. Headland embraced the challenge and has become an expert on taxes and improving the tax climate for North Dakotans.

Learn why it has been Rep. Headland's mission to get rid of income tax in our state and learn more about the bills that are being heard in the 68th Legislative Assembly that pertain to income and property taxes.

Read more about Rep. Headland's income tax bill: House Bill 1158

Contact Rep. Headland: cheadland@ndlegis.gov

Contact Emmery Mehlhoff: emmery@ndfb.org

Sign up for NDFB's Legislative Front (scroll to bottom of the page.)

Learn more about NDFB policy .

Transcript

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[00:13] Emmery: Welcome to Straight talk with NDFB.

[00:15] Emmery: This is your host, Emery Melhoff. The legislative body is now reconvening after their crossover break as the Senate bills go over to the House and the House bills go over to the Senate. Each bill will go through the hearing process again. In today's episode, I visit with Representative Craig Headland from District 29. Representative Headland is a farmer and former rancher who sits as chairman of the House Tax and Finance Committee. Representative Headland visits with me about sales tax, property tax, and his thoughts on the purpose of taxation. Join us for this episode. 

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[00:54] Emmery: Welcome, Representative Headland from District 29. So Representative Craig Headland has been a champion for the North Dakota Farm Bureau for several years now. He is the chairman of the House Taxation Committee. Can you tell us about how long you've been in the House and a little bit about how you came to be the chair of the House Taxation Committee?

[01:20] Rep. Headland: Yeah, well, I was first elected in 2003. I served that session, 57th, I believe, and I ended up on the Finance and Tax Committee. It wasn't my first choice by any means, but I ended up there, and I enjoyed it so much that I'm still there. I haven't moved. I've spent my entire career on the Finance and Tax community.

[01:49] Emmery: Well, we're really fortunate as North Dakota Farm Bureau to have you there, as you have been a lifelong grain farmer, is that correct?

[01:59] Rep. Headland: I have. I did have a cow-calf operation prior to getting elected, but I had to make a decision back then. I could not figure out a way that I was going to feed cattle and be in the Legislature, so I opted to move on from cattle. And as much as I enjoyed having them, I realized how much work they really were. And I came to realize how much I was able to enjoy some of those summer activities that a lot of my friends enjoyed, like golfing and fishing, instead of having to pay every possible freem moment I had.

[02:35] Emmery: Until we figure out the whole being two places at once physics problem. I think that happens a lot when you get elected. But you still grain farm, is that correct?

[02:49] Rep. Headland: I do. I raised corn and soybeans, and my daughter is going to start farming with me this year. She's helped me in the past essentially her whole time of growing up, but she's got her job, her career now, but she was able to rent some land. So we're bringing her in and we'll see how things all go as I get closer to retirement.

[03:13] Emmery: That's really exciting.

[03:15] Rep. Headland: Yeah, it's gone well.

[03:16] Emmery: Let's dive a little bit into the things going on in the Tax and Finance Committee. But first, we as a state of North Dakota and the state of North Dakota government obviously has financial responsibilities. So maybe we can start out by talking about what the purpose of taxation is. A lot of people don't like taxation. Like you hear a lot, taxation is theft. But maybe we can start out by talking about the purpose of taxation and why it's important.

[03:51] Rep. Headland: Well, first of all, if you believe that you need some type of government to offer individuals protection and things like infrastructure, just things that we need every day in our daily lives that we probably individually can't provide for ourselves, you need some form of government. And in order for government to operate, it needs to have some revenue. And that's where taxation comes into play. And I agree, nobody likes taxation. But it is one of those necessary evils that we need as a government to provide the services that are demanded and requested by individual citizens.

[04:36] Emmery: So how do we determine then, as a state which taxes are good and which are bad? How do we find the fair way to apply that?

[04:46] Rep. Headland: Yeah, it's probably a matter of individual opinion, but Republicans tend to believe that a general taxation that applies to everybody is probably better. I think Democrats traditionally have believed that the more you receive in wealth, the more you should pay. So a little different philosophical beliefs there, but that's kind of the way it's always been. So Republicans probably would favor things like sales taxes and things like that over income taxes, which income taxes tend to penalize wealth and achievements. So we or I myself as a Republican, believe that income taxes is probably the worst tax that we have as a state government. And I've been trying to whittle the rates down my whole legislative career. And eventually I'd like to get to a zero rate where nobody has any individual income tax obligation.

[05:54] Emmery: That is really interesting if you think about just the difficulty in finding a strong workforce right now, to think about the fact that an income tax is really penalizing those who are willing to work.

[06:08] Rep. Headland: It does. And again, that's why I favor getting that rate down to zero. It does penalize work and achievement. And in a state that is so in need of workforce, we believe that it's going to help us attract individuals to move to our state and come and help us with our workforce challenges.

[06:31] Emmery: So you have a bill along with other House and Senate sponsors, you said that every session had a bill that's whittled down the income tax. But tell us about the bill that you have right now addressing income tax in North Dakota.

[06:49] Rep. Headland: Well, right now I've sponsored a bill, House Bill 1158, that has passed the House with a large majority, 79 votes, I think, for the passage. It's a bill that would take us it would modernize our income tax going from five marginal rates to essentially one rate of one and a half percent. It would actually have a zero bracket and then a one and a half percent bracket. So it's not a true flat tax, but when the bracket up front is at a zero rate, we tend to call it a flat tax.

[07:23] Emmery: So how it is now you said, is five different brackets, and that's based on income. And now go ahead.

[07:30] Rep. Headland: Well, I was just going to say our current brackets range from 1.1% to 2.9%. There are five brackets there. It's really kind of unnecessary to have that many brackets and such a narrow range of tax. So we believe by modernizing our tax, going to a flat tax, doing it in a way that no one receives the tax increase from the reductions is a good way to do it. And that's what we've achieved with this bill. We have a pretty significant surplus going into this session. General fund revenues have been running, I believe, about 24% higher than projections. That's a significant over taxation, and achieve that by growing your economy. So North Dakota's economy is really growing and it's only being held back because of our lack of workforce. We could be growing even faster than we are. But when in times of excess, we believe that giving back to the taxpayer is proper and necessary, it keeps you from growing government, which is another real factor in consideration when you're considering lowering your taxes. So I think it's a win win all around. It's a win for those who have chosen to live and work in North Dakota. And it's also going to be a win in trying to fill some of those unfilled jobs that are so necessary to keep our economy growing.

[09:09] Emmery: How much money are we talking about here?

[09:11] Rep. Headland: Well, the revenue reduction in the bill, the fiscal note, is $566 million.

[09:18] Emmery: Wow.

[09:18] Rep. Headland: The income tax today is generating I think it's going to be about $1.1 billion over the biennium. So this would be a significant reduction in income tax collections.

[09:34] Emmery: When you pay income tax, North Dakota's rate, like you had mentioned, is already so small in comparison with definitely our state to the east, Minnesota. So some of that income tax relief initially might seem small, but when you think about the significant pushback to the people of you're talking close to a billion dollars, that's a billion dollars in the pockets of North Dakotans to do something with, to grow, like you said, to grow the economy, to put it to work. And that's going to grow businesses and homes in North Dakota and not going to grow government. And that's awesome.

[10:12] Rep. Headland: That's correct, Emmery. When we allow the citizens, the taxpayers, to keep that amount of money, that money is going to eventually run through our economy and it's going to generate sales taxes. It's going to generate probably increased in motor vehicle excise taxes and other taxes all around. So it's not like you're completely losing 100% of that revenue. And we've seen that in some model software running that does provide a positive revenue picture for North Dakota. It doesn't really cost 100% of what that $566 million fiscal note says it's something around 90% of that over time.

[11:00] Emmery: Yeah, it really gives the earner of that the opportunity to choose where they put it.

[11:05] Rep. Headland: Well, as you know, a lot of, and I would say the bulk of our small businesses in North Dakota file through some type of pass through, whether it be LLP or Limited Liability Corporation or however, and they will also benefit from the reduction in the individual income tax.

[11:28] Emmery: I want to touch on property tax too here because that is something that we hear a lot about as farmers and ranchers, we obviously pay a significant portion of the state's property tax. So I want to just touch on that and see if you can give us an overview of where property taxes at the state and any changes that might be coming through this session.

[11:53] Rep. Headland: Well, there are two bills that are coming over from the Senate. One of them is to buy down an additional 20 mills through education funding. That comes with about a 200 plus million dollar cost. The state doesn't levy property taxes, so in order for us to relieve those burdens, the state has to write checks. So essentially what you're doing is you're taking general fund revenues and applying them towards the education formula in this case and then taking away that ability for those school districts to levy that 20 mils. And that's how the property tax relief is provided. And we've been doing that for some time. Actually, I think we've spent over $7 billion now in property tax relief. And the trouble is that we haven't figured out a way for those property taxpayers to essentially continue to receive the benefit of those. As taxable valuation increases annually because of inflationary things it eats away at the relief the state provides. So in doing that, the cost likely increases for the state every biennium. Also as those inflationary factors increase cost, increase the value of a mill through taxable value.

[13:18] Emmery: You also have a bill relating to transparency in property tax.

[13:23] Rep. Headland: Well, I did have a bill and it was going to change the statement and try to provide more information to a property taxpayer in a way that clarifies how much as a percentage of your total property tax bill is applied to each taxing district that's on your statement. And we just ran into a lot of difficulty, challenges and there was a lot of pushback from county auditors and Association of Counties. So what we decided to do in collaboration with the Tax Department is we're going to sit down during the interim, if the bill passes, and it did pass the House unanimously. Sit down in the interim and see if we can come to agreement on a statewide standardized property tax statement. And then we're going to try to gather information by standardizing the chart of accounts that a county uses to record their revenues and their monies in a way that when we bring it together, it'll be like an apples to apples accounting instead of apples and oranges. It's a little more challenging than I anticipated, but we're going to get there. We're going to hear a new bill that was just introduced. It's a constitutional amendment that essentially will eliminate property taxes. We're going to hear that when we get back to the House in a hearing on Wednesday morning. And I'm interested to find out from the bill sponsor how he intends on funding. That be a challenging thing to pass, I think, committing the state to I don't remember the exact number, but I'm thinking it's somewhere between one and a half and $1.8 billion annually of property tax collected. And if the state was going to somehow pick up that cost of every taxing district, I'm interested to hear how the bill sponsor intends on funding that because I don't see it being sustainable in any way.

[15:41] Emmery: Yeah, it is interesting to think about just the I mean, you hear out in the countryside that property taxation is one of the worst types of taxation because it put a penalty on owning property and obvious property taxes are probably one of the least popular taxation.

[16:02] Rep. Headland: Well, I agree with you wholeheartedly. It's a tax that people really, I think, dislike the most. But I would say I'm not sure if they equate it to what it's going to pay for, if they're willing to do without some of those services that we're supposed to receive from paying the property tax and then the general funding of education, which has been traditionally paid for locally with property tax. I get why people don't like to pay it, but I wonder if it's not more because they have to write a check every end of the year, year or end or by early February. It's a little different than people paying their other taxes. Like sales tax with every transaction, income tax, you may pay quarterly, or if you're working for a company, it's deducted from your check. And so you don't actually have to physically write that check. And I think it's the amount and the fact that some people don't plan. We're all human beings, and sometimes things are just a little harder when you actually have to sit down and write a significant check. So I get it. I get why people are frustrated with it.

[17:24] Emmery: Yeah, it is interesting to look at too, maybe having an honest conversation amongst the constituents and local communities to say, okay, what are we getting for our property tax? What are we paying into here? And that's why I like the interim conversation that you guys are going to have just looking at as a good starting point. Okay, how do we help the citizens know what their tax bill is, know what the county is spending, and then know for people who own land in multiple counties, especially farmers who sit on county lines, be able to look at all those statements and know where their money is going. I think it's a really good conversation, and I'm really glad that legislation has sparked that. How do we be a transparent state and how do we help our subdivisions be as transparent as they can with what they're doing with their residents money?

[18:26] Rep. Headland: Right. I wanted to even take it as far as the statement being able to show how much of that tax burden was voted on by the taxpayer themselves. We all tend to want to be as supportive as we can, like for education, when there's a bond referendum for an addition to a school or to build a new school. A lot of people tend to support those kind of things and maybe not realizing that that's going to be part of their property tax burden for a significant amount of time moving forward. And I thought it would be interesting to be able to show each taxpayer on each parcel how much has actually been voted on by them. And I think we've seen it across the state. When people are challenged with mill levy increases for certain projects or roads or school districts or various things that local governments provide, they tend to support the ideas behind them, and that does add to the burden of property taxes. So it's all about understanding what your money is going for. So I think that's why the bill was important. I wish we could have gotten to some type of an agreement that we could have maybe made those changes sooner rather than later. But it's a big issue and it needs significant study, and we need to make sure that when we do it, we do it right and properly.

[20:12] Emmery: People say turn it into a study and it dies. And that's just not true. Like, you see, so many of these legislative studies wind up with substantial bills on the other side of them that are put before the body to consider, like, hey, this is the work that we did, look at what we came to an agreement too. So it really is an opportunity to iron out some differences in the two years in between and come to a consensus.

[20:39] Rep. Headland: It is. And this one is going to be handled a little differently than most legislative studies. It's going to be handled through the Tax Department, and it's going to consist of, well, the tax commissioner, the state supervisor of assessments, local auditors, and others. And it won't be necessarily a legislative committee. I think there's a couple of legislators named on it to sit on it, so they can bring that to the perspective and the outcome to the Legislature. But it's really going to be made up...and it's not really traditional legislative interim committee, it's more of a task force kind of set up similarly to what the governor set up years ago when we went through mill levy consolidation.

[21:31] Emmery: I'm looking forward to seeing or to reading the results of that study and just thank you again for the work that you're doing as a chairman and as a farmer representing your industry in the Legislature. And we really did just touch on tax and finance issues, but you really have been influential in a lot of different bills this session to benefit production agriculture and our farmers and ranchers out there. So thanks again, Representative Headland, for your time today, and enjoy getting back to work on Wednesday.

[22:05] Rep. Headland: Well, thank you, Emmery. I appreciate Farm Bureau and what they do and what they provide, their membership, and always happy to work with Pete and those of you who are at the Capitol. We all have the same goals, right? We want to provide the best that we can for the citizens, your membership, and that's what we work to achieve. So thank you again.

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[22:34] Emmery: You've been listening to straight talk with NDFB. To learn more about the bills that NDFB is tracking during the legislative session, visit ndfb.org and subscribe to our Legislative Front and Action Alerts. NDFB is hard at work representing NDFB policy at the North Dakota Capitol. If you have any questions about legislation, feel free to contact our lobbying team at ndfb.org.

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