Governor Dayton unveiled his $38 billion dollar budget proposal last week—the largest budget proposal in state history paid for by the largest proposed tax hike in state history. Before we can properly evaluate the Governor’s budget there are key questions that must be answered; what is the full list of goods and services to be taxed, will there truly be no impact on the tax burden for middle-income Minnesotans, and what impact will these proposals have on jobs and job creation in Minnesota?
Disappointingly the Governor has yet to release the full list of goods and services that would be taxed under his new sales tax proposal. We already know that Minnesotans will see increased taxes on things like haircuts, oil changes, digital downloads, and dance lessons, but the list remains incomplete a full week later. Without the comprehensive list of goods and services, it is impractical for Minnesotans to fairly judge the merits of the Governor’s plan, and for legislators to properly examine the proposal as it begins to make its way through the committee process.
With an incomplete proposal, it’s impossible to judge whether or not middle-class Minnesotans will pay more in taxes. The Governor has asserted that by lowering the rate and broadening the base, no one but the wealthiest Minnesotans will see a tax increase under his plan. But with such a wide array of new taxes on everyday items, and more being added every day, the numbers are questionable at best given all of the outstanding variables.
Our own history of the sales tax should provide an insight to the serious concerns every Minnesota taxpayer should have about broadening the base. In every case since its inception the terms "fairness", "property tax relief", and "temporary increase" were used to either broaden the sales tax base or increase revenue. Government simply cannot resist growing revenue and taking more from the private sector.
If this current proposal should pass as proposed, you can be assured that in a relatively short period of time the rate for the broadened sales tax base will be increased, while the bait and switch of property tax relief will be no longer and the march for more revenue will continue. The sales tax has its own inherent built-in inflation protector because as prices rise, so does the revenue. We should be very wary of broadening the base. Three times in recent history, the increase in sales tax rate was billed as temporary, but then was quickly made permanent. The legislature has never carried out its promise of temporary increases; they have all become permanent after the increases were adopted, without any sunset or rollback to the original rate.
Finally, it remains to be seen what impact the Governor’s proposals would have on jobs here in Minnesota. As states around the Midwest work to make their business climate more competitive, this proposal seems to be taking a step in the opposite direction for Minnesota. The tax increase on the wealthy is guaranteed to affect a great deal of small businesses given that 92% of all small businesses file through their individual tax returns. This tax increase on “wealthy” Minnesotans could have a detrimental effect, costing jobs and affecting the bottom lines for small businesses across the state if the new tax rate, among the highest in the nation, were to take effect. In addition, businesses would foot the bill for over a billion dollars in new ‘business-to-business’ taxes that would almost certainly be passed on to consumers in the form of higher prices.
Over the coming weeks and months, the legislature will continue to debate and consider the merits of the Governor’s bill. I hope these critical questions will be answered in the coming weeks, and that the legislature carefully considers the impacts of each of these policy proposals and how they impact middle-class working Minnesotans.
Jerry Hertaus
State Representative, District 33A