Below are two editorials regarding the Minnesota business climate and how it connects to other quality of life issues. As a co-author of the bill to phase out the Commercial/Industrial state levied property tax, I hope to see this implemented and at least take a step in the restoration of a better business climate so we have a better jobs climate.
As always, please feel free to contact me if you have any questions or want to share your thoughts on the legislative session. I can be reached at 651-296-0518 or by e-mail at firstname.lastname@example.org.
Editorial: GOP has a better business tax idea
Think of it as a down payment on business tax reform.
Feb. 4, 2012 Published
Thorough reform of the way Minnesota taxes businesses is at least a year away at the State Capitol. But for understandable economic and election-year reasons, the political itch is intensifying to make a modest down payment on lower, smarter business taxes this year.
Republican legislative majorities say now’s the time to begin a multi year teardown of the 11-year-old statewide business and seasonal-recreational property tax. It’s a tax oddity developed as part of the 2001 property tax overhaul to put a floor under business property taxes for education’s sake. Only a dozen other states employ such a tax.
Some DFLers are nodding in tentative agreement with the Republicans. DFL Gov. Mark Dayton is not among them. He has his own idea: a one-time tax credit — $3,000 per new hire this year, $1,500 in the first half of 2013 — for new hires from the ranks of the unemployed, veterans and new college graduates.
Dayton would do well to give the GOP alternative serious consideration. For a comparable expenditure of state revenues in fiscal 2013, the Republican plan offers many more businesses a promise of lasting relief from a regressive tax — that is, one that is borne disproportionately by low- and middle-income Minnesotans, in the form of higher prices and lower wages (see box, above right).
Amid the overblown partisan rhetoric about how government “uncertainty” is damaging the business climate lies a kernel of truth: Businesses don’t respond well to short-term tax incentives, here this year and gone the next. A decision to hire is a long-term commitment by an employer. Few such decisions are likely to be much swayed by a one-time credit, particularly one as small as Dayton proposes.
Dayton’s tax credit would deprive the state of $35 million in forecasted revenue. He proposes to rebalance state books by eliminating some or all of a tax advantage for foreign-operating corporations that has morphed into a tax dodge unintended by the lawmakers who created it in the late 1980s. Closing that corporate tax loophole is a change long sought by DFLers and resisted by Republicans.
By comparison, Republicans propose to spend $31 million in fiscal 2013 to begin a 14-year phaseout of the $800-million-per-year “state general levy.” They say they can find additional spending cuts in the current budget to pay for it. Depending where they look, they’ll meet with stiff resistance in the governor’s office.
To be sure, those are two distinct approaches with two different funding strategies. But it would be a shame — and a telling failure of divided government — if those differences cannot be bridged in a year when both parties say that a small, stimulative business tax break is both affordable and warranted.
Compromise could take a number of forms. Here’s one: Dayton could agree to trimming the business property tax — but not to putting into law a schedule for phasing out the tax through 2026. Setting such a schedule into statute at a time when long-term state budget forecasts project recurring deficits is an empty promise, one that future Legislatures and governors would be both free and likely to break.
In exchange, Republicans could give up their resistance to closing the foreign-operating corporations loophole. That’s an obvious first move toward state corporate income tax reform.
Many more loopholes are ripe for elimination in exchange for reducing the corporate tax rate. Those adjustments should be prominent features of a larger tax reform plan in 2013, now in the works under the leadership of state Revenue Commissioner Myron Frans. For the ambitious plan he’s developing to succeed, lawmakers will need to display more tax policy bipartisanship than the State Capitol has seen in many a year. Taking a bipartisan baby step on business taxes this year would be a fine way to get into practice.
Editorial: Ouch. Minnesota takes a licking on tax climate
Posted: 02/07/2012 12:01:00 AM CST
Updated: 2/07 6:19:16 PM
Ouch. The nonpartisan Tax Foundation has issued its State Business Tax Climate Index for 2012, and Minnesota did not perform well.
With a business tax climate that looks “frosty” by comparison with those ranked at the top, Minnesota – No. 45 for the second year in a row – leads only Rhode Island, Vermont, California, New York and New Jersey at the bottom of the list. “The states in the bottom 10 suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates,” the report says.
The top 10 states on the index remained unchanged from 2011, with Wyoming, South Dakota, Nevada, Alaska and Florida in the top five.
There are a lot of ways to measure business climate. This one’s interesting because it’s intended to serve as an easy-to-use ranking for business leaders, government policymakers and taxpayers. We pay attention to reports like this because a better business climate typically equals jobs. (Although not always. No. 3 Nevada’s unemployment rate is 12.6 percent, more than four percentage points higher than the national rate. On the other hand, booming North Dakota places a middling No. 29 on the survey. Clearly, a host of factors are in play.)
The index compares states on 118 different variables in five key areas of taxation (major business taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes). It adds the results to determine a final, overall ranking; the higher the score, the more favorable a state is for business. The index represents the tax climate of each state as of July 1, 2011, the first day of the standard 2012 state fiscal year.
“Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax or the sales tax,” the report says, noting that Wyoming, Nevada and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax.
The report says, “The lesson is simple: A state that raises sufficient revenue without one of the major taxes will, all things being equal, have an advantage over those states that levy every tax in the state tax collector’s arsenal.”
The report warns about the temptation to lure business with tax incentives and subsidies instead of broad-based tax reform. “Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness.”
The Freedom Foundation of Minnesota, which is making note of the findings, points out that the report “identifies Minnesota’s 9.8 percent corporate income tax rate as one of the highest in the nation, suggesting that Minnesota’s high-tax history may be responsible for low rates of job creation. The state is also one of the bottom 10 states for individual income tax rates.”
Minnesota fared better in property tax rank among the 50 states, earning a 26th-place ranking, the Freedom Foundation says, but the state has a sales tax rank worse than two-thirds of states in the nation (36th).
Tax Foundation economist Mark Robyn told us Minnesota’s performance is affected by high statutory tax rates and a base that is “not as broad as it should be.”
The foundation’s approach, he said, is to encourage states to “tax at as low a rate as possible and to broaden the base” to include, for example, those at all income levels or all categories of retail sales.
We hope the report, at taxfoundation.org/research, will provide some timely perspective at the Minnesota Legislature, where eliminating the business property tax is among initiatives on the GOP agenda.
We Minnesotans long have been proud of our top spots on national rankings for such things as livability, literacy and health. So a bad performance rankles. Sooner or later, though, perceptions about our business climate will affect those other quality-of-life rankings. Before they do, let’s fix it.