Tax Day 2013 arrived on a Monday in Minnesota’s endless winter. Could it get any worse? Well, actually, yes. By this time next year, Minnesota could have a tax system that is more complicated, less transparent and more of a drag on innovation and investment.
The Minnesota Legislature is busy looking under every rock to find new revenue. So far, it has proposed – and passage seems likely – “fees” on homeowners and auto insurance policies to bail out public pension funds, a new health insurance premium tax to pay for the Health Insurance Exchange and a fourth tier on the state income tax to finance new education spending. Other tax increases that are being bandied about include taxes on tobacco and alcohol, an extension of the sales tax to include clothing and some personal services, a surcharge on high-income earners to pay back the shift in payments to schools, a metro-area sales tax increase to finance investments in transit and new taxes on residents of the Rochester area to pay for infrastructure improvements to support Mayo’s planned expansion.
That’s quite a list, even for a DFL-controlled state government. It seems likely that some – and perhaps all – of these taxes will become law. That’s not all bad. Some of these new taxes should be imposed. But new taxes shouldn’t be the result of a debate that is framed mainly by “tax the rich” or “no new taxes.”
Instead, Minnesota needs a debate framed by a far more important question: “What is the tax policy Minnesota needs to become a state of innovation, knowledge and economic growth?” If that’s the question, there aren’t many answers to be found in the second paragraph above.
The challenge is that neither the DFL nor the GOP has a clear vision of what Minnesota’s future should look like. Democrats are insistent on making up for what they see as opportunities lost under the eight years of the Pawlenty Administration. Meanwhile, Republicans are stuck defending the status quo. “No new taxes” is a working partner to “no new spending.” The GOP’s approach preserves what isn’t working while blocking investments in government programs that should work better.
The problem with both perspectives was identified by New York Times columnist David Brooks in a recent article: “The future has no lobby, so there are inexorable pressures favoring present consumption over future investment. The crucial point is not whether a dollar is spent publicly or privately, it’s whether it is spent on the present or future. The task today is to reform institutions and rearrange spending so we look like a young nation and not a comfort-seeking, declining one.”
There is Minnesota’s challenge and opportunity in a nutshell. Public policy is too focused on redefining the past or preserving the present instead of creating the future. Yes, Democrats will make the argument that they are investing in early childhood and higher education, infrastructure and other important assets. And Republicans will counter that they are protecting job creators and small businesses in their efforts to build the economy.
There is truth to both those positions. But both also miss the mark, especially on tax reform. What Minnesota needs is a tax system that recognizes the realities of our state. We have a population growing older, moving from their high-earning years to spending years. We live in a world in which capital is increasingly mobile and investment opportunities are connected by technology that have no regard for political borders. And, Minnesota’s economy is based in services and knowledge.
What does all this mean?
First, Minnesota desperately needs tax reform. But tax reform costs money. Reducing taxes on growth and investment require new taxes on consumption. Senate Majority Leader Tom Bakk is absolutely right when he makes the case for lowering the sales tax rate and expanding the base to include clothing and personal services.
Second, Minnesota should subsidize knowledge, not individual jobs. Last year, the New York Times reported that state and local governments provide at least $80 billion annually to attract jobs to their communities. The money is provided with little accountability and little evidence that taxpayers are receiving fair value for the giveaways. Invest in lifelong learning and training, infrastructure (including broadband) and incentives for investments in equipment and people and the return will be substantially greater.
Third, taxes should be transparent. Tacking fees onto insurance premiums to pay for unrelated public purposes is absurd. The same can be said for many “tax expenditures” – the deductions and credits that clutter our tax code.
Finally, reform won’t happen if it’s left only to legislators. The business community is spending $600,000 to tell Minnesotans what taxes shouldn’t be raised. We all would be better off if business leaders were invested in a campaign to engage Minnesotans in a thoughtful discussion of what a fair, transparent and growth-oriented tax should be.
Minnesota needs a lobby for the future. In the end, isn’t that our job?
This post was written by Tom Horner and originally published on NextMinnesota. Follow NextMinnesota on Twitter: @nextMN.
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