Commentary : Tax hikes could bring moving vans
While other governors are racing to become the tenth state in the nation with no personal income tax, Governor Dayton is headed the opposite direction in a hurry. Even after revising and “scaling back” his widely panned tax plan, the governor has proposed $1.8 billion in net tax increases, in part by hiking Minnesota’s top personal income tax rate to the fourth highest in the nation. Much of the revenue from the multitude of tax increases will be used to pay for the gigantic and unsustainable new spending contained in the governor’s budget.
Let’s face facts: what state leaders have labeled as “tax reform” is just good old fashioned tax and spending hikes, and they couldn’t come at a more inopportune time. Our state has been moving in the right direction by weathering the economic storm and balancing our budget without raising taxes.
According to a recent economic analysis by economist Art Laffer, from 2002 until 2012, “62 percent of the three million new jobs in America were created in the nine states without an income tax, though these states account for only about 20 percent of the national population.” Laffer’s analysis didn’t end there: he described the “stable revenue growth” experienced by no-income tax states contrasted with New York and California, both of which experienced wild swings in their income tax collections due to their heavy reliance on taxes paid by the top 1% of earners.
Governor Dayton’s tax proposal includes a so-called “millionaire tax” modeled after California and New York (see above). Governor Dayton’s personal income tax hike would put Minnesota in league with states like California and New York, where punitively high taxes and unsustainable government spending are suffocating the private economy, hindering economic growth, and driving jobs and taxpayers out of the state. Even Senate DFL Majority Leader Tom Bakk admits it is “probably helpful to not be in the top 5 of any tax category.” Yet the governor and legislature are on the path to do just that.
What Governor Dayton is offering is anything but reform. While the rest of the country is having a robust debate about 21st century tax policy and badly needed spending restraint, our governor and legislative leaders are regressing to a stale by-gone era of sky-high taxes, unsteady and unreliable revenue streams, and big, unwieldy government.
Dayton and the legislature are also relying heavily on so-called “sin taxes”. Governor Dayton is seeking a cigarette tax hike of 94 cents per pack, and some of his legislative allies are seeking to double that tax hike. Cigarette taxes are not only highly regressive (according to the Centers for Disease Control, 34 percent of adult smokers in Minnesota earn less than $15,000) but are also a very unreliable source of revenue. Total state tax collected on cigarette sales in Minnesota have declined by 6.1 percent each year for the last ten years. If this trend continues, Minnesota’s new tax scheme would once again rely heavily on an unstable and declining source of revenue.
And this is just one example of the “back to the future” tax reform working its way towards becoming law. It doesn’t have to be this way.
Much as we hate to admit it during football season, Minnesota and Wisconsin are similar states in many ways. It wasn’t too long ago when Democrats controlled Wisconsin state government, including majorities in the legislature and Governor Jim Doyle.
During Doyle’s tenure as governor, Wisconsin, like Minnesota, faced numerous budget deficits. Doyle finally proposed a host of tax increases including a one percent hike in income tax rates, an expanded sales tax, and a whopping cigarette tax increase. His tax and spending overreach was so dramatic that the once-popular Doyle saw his public approval plummet. In 2010, Scott Walker was elected as Wisconsin’s 45th governor. Walker also swept into office Republican majorities in the legislature.
Since then, Walker has proposed bold tax, spending, and collective bargaining reforms. He tackled a $3.6 billion budget deficit without enacting new taxes. His subsequent tax reforms led to property tax reductions for the first time in twelve years. Walker’s reforms have proven so popular with voters in Wisconsin that in 2011, he became the first governor in American history to win a recall election. In that special election, he accumulated more votes than he received in his first gubernatorial election.
Governor Walker recently announced a goal of creating a state tax and regulatory environment that would allow for the creation of 250,000 private sector jobs in the next two years. It’s an ambitious but achievable goal for a state that has purposefully sought to become competitive by reducing spending and taxes.
If Governor Dayton and his legislative allies are successful in enacting devastating and massive tax hikes, they better add another lane to the Stillwater Bridge to accommodate all of the moving vans headed east.