Corporate tax cut concerns

It might not be the right time for cutting the corporate franchise tax with the state facing a deficit, according to some House Taxes Committee members.

While Rep. Ann Lenczewski (DFL-Bloomington), the committee chairwoman, said this kind of tax is flawed, her issue is more with the timing of the proposal that is part of Gov. Tim Pawlenty’s budget.

“I didn’t hear a positive response from the governor when I wanted to do this last year,” she said during a Feb. 4 meeting. “It’s a very expensive ticket item and it’s very difficult because we have a deficit.”

The cut would take the business tax rate from 9.8 percent to 4.8 percent over six years beginning in 2010.

She added that a sales tax cut would help businesses more because they pay more in sales tax than in corporate franchise tax.

Revenue Commissioner Ward Einess said the governor wanted to do more than just satisfy the constitutional requirement to balance the budget and “just get by” for the biennium.

The cut would give the state a more competitive rate, which would help encourage businesses to grow and invest in Minnesota, Einess said. The current rate is one of the highest in the nation.

“When you say you’re reducing a tax by 50 percent that gets noticed not only here, but around the country,” he said. “We want to change the climate in Minnesota.”

Rep. Diane Loeffler (DFL-Mpls) agreed that the issue is timing. “We have long-term goals and things that we need to fix. We have to talk about which long-term goals should get implemented.”

Rep. Laura Brod (R-New Prague) said stopping at Minnesota’s borders was not the answer either. “We need to look at this on a worldwide basis. We are in unchartered waters,” she said. “China is on the move like it never was before.”

Lenczewski agreed that more discussion would be needed on a variety of things.

“I think we’re going to have this debate for a long, long time this year,” she said.