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Legislative News and Views - Rep. Linda Runbeck (R)

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A closer look at impacts of tax increases

Friday, September 13, 2013

By Rep. Linda Runbeck

 

Talk of a “special session” at the Capitol became talk of a “do-over” session as Gov. Mark Dayton admitted he and his DFL-controlled Legislature made tax “mistakes”.

“No one wants to take responsibility for it,” he said of the business-to-business sales taxes that were quietly slipped into the huge 2013 tax bill at the end of the legislative session. 

I was hopeful the governor would look at fixing these mistakes during the special session, but it became clear his concern was only the tax on farm equipment repairs, farmers being a key political force in next year’s elections. However, a bipartisan consensus is growing that all three new business-to-business sales taxes — on the sectors of warehousing, equipment repairs, and telecommunications — must be reconsidered because they threaten Minnesota jobs.

Here in Lino Lakes, a large warehousing business employing nearly 150 people told me customers have already said they’re investigating options in other states.  

Unfortunately, the majority party in the House and Senate rejected the special session opportunity to repeal all three taxes despite clear bipartisan support. While I’m pleased the special session was called to provide needed storm relief to 18 counties, more broad-based tax relief must be on the agenda.

On the subject of tax impacts: We’d heard it said over and over that Minnesota’s tax code is unfair, that the rich didn’t pay enough taxes relative to their incomes. The stated fix, according to Dayton, was higher taxes on the rich. And that’s what the DFL did in the 2013 Tax Bill — they increased the income tax rate (ours is now the second-highest at $250,000, filing jointly), added a new gift tax and increased the alternative minimum tax.

Has the tax code become more progressive? Are the rich now paying their fair share? The truth is this: The needle has moved relatively little. That’s according to a recent review by the Minnesota Center for Fiscal Excellence relying on figures from the 2013 Tax Incidence Study conducted by the Minnesota Department of Revenue itself!

The inconvenient fact: Using the tax code to close the income gap between the rich and poor and to redistribute wealth is not an effective tool. More powerful forces such as changes in the economy and changes in income patterns (affected by recessions or expansions, for example) can’t be easily mitigated by the tax code, especially by a single state’s tax code — because states have to be concerned with competiveness. Our state is already an outlier, ranking first in the nation for progressivity. These goals of progressivity are better left to the federal tax system.

Furthermore, according to the study, the overall impact of nearly $2.1 billion in new taxes falls hard on lower-income households. Why? Because corporate and business taxes affect the price of everything, including wages and even job openings, and the Tax Incidence Study bears this out. The governor raised more than $739 million in corporate and business sales taxes in addition to a huge increase in cigarette and tobacco taxes. These taxes are regressive and offset the progressivity of changes made to the income tax.

On the horizon: Concerned with traffic congestion on I-35W? So is the Minnesota Dept. of Transportation (MnDOT). In a recent overview of its I-35W North Managed Lanes Corridor Study, MnDOT identifies its preferred managed lane concepts along the corridor from Lexington Avenue south. The managed lane concept, otherwise known as high occupancy toll lanes or MnPASS, is the preferred vision for this stretch of freeway. For more information, go to www.dot.state.mn.us/metro/projects/i35wstudy.

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