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Published April 11, 2011, 04:58 PM

ND Senate Scales Back Income Tax Cuts

North Dakota Senate Republicans on Monday scaled back proposed state income tax reductions and said they should last for only two years, dramatically shrinking a $145 million House package of permanent tax cuts.

By: Dale Wetzel, Associated Press

BISMARCK, N.D. (AP) — North Dakota Senate Republicans on Monday scaled back proposed state income tax reductions and said they should last for only two years, dramatically shrinking a $145 million House package of permanent tax cuts.

Republicans rebuffed an alternative plan proposed by Senate Democrats that offered one year's worth of individual income tax credits to North Dakota taxpayers while exempting the first $75,000 of corporate income from state tax.

Bob Stenehjem of Bismarck, the Senate's Republican majority leader, opposed the move to trim the GOP's tax proposal, arguing that it was getting short shrift because of the spending demands of the Legislature.

"When are we going to stand up for the citizens of North Dakota and leave some money in their pockets for a change?" Stenehjem said.

Senators eventually voted 36-10 to approve legislation that offers $111 million in individual and corporate income tax cuts during the next two years. It trims the top individual income tax rate from 4.86 percent to 4.13 percent while shaving the maximum corporate rate from 6.4 percent to 5.89 percent.

Sen. Raymon Holmberg, R-Grand Forks, the chairman of the Senate Appropriations Committee, said the measure offers a 15 percent individual income tax reduction and an 8 percent cut in corporate income tax.

The House proposal, which was included in two separate bills, offered a 15 percent individual income tax cut and a 10 percent reduction in corporate taxes. The corporate proposal included a tax exemption for the first $75,000 in business income, and a 4.9 percent flat rate after that.

Holmberg said uncertainty about continued state oil tax collections and potential federal budget cuts have made many senators leery of permanently reducing North Dakota's income tax rates.

"We felt that the amount of tax relief was a little too rich," Holmberg said.

The legislation now returns to the House, where its final details will be written by House and Senate negotiators and then submitted to both chambers for their final review.

Sen. Rich Wardner, R-Dickinson, said the Legislature was setting aside more than $390 million to maintain a program of subsidizing local property tax reductions, as well as setting aside money in earmarked funds for water and public works projects.

Sen. Dwight Cook, R-Mandan, the chairman of the Senate's Finance and Taxation Committee, said lawmakers' worries about maintaining tax cuts were much less pronounced than their concerns about increasing state budgets.

"We didn't hear great concerns about the shakiness of the future when the spending was happening," he said.

The Democratic alternative suggested a single 6.4 percent corporate tax rate — equal to the state's present top rate — while exempting the first $75,000 in corporate income from state tax.

The Democratic bill granted a $140 income tax credit to individual taxpayers during the current tax year, while couples would have been eligible for a $280 credit.

Sen. Ryan Taylor, D-Towner, the Senate's Democratic leader, said North Dakota's income tax rates ranked well below the averages of states that levy them.

"It's not something we hear a lot of people complain about, at least not on the individual income tax," Taylor said.

The bill is SB1289.

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