Gov Dayton has proposed his tax increases, and they do not bode well for Minnesota’s future. His proposal is projected to increase revenue in the state by over two billion dollars, and this would have a negative impact on the state’s economy. Taking over two billion away from the private sector and putting it into the public sector would cause a misallocation of resources, decreasing the efficiency of our economy.
The most devastating piece of his proposal is his sales tax changes. His proposal drops the sales tax in the state to 5.5%, yet he expands what is taxable to offset this decrease. The expansion causes the decreased rate to bring in over two billion in revenue.
The expansion of sales tax would cover an entire laundry list of services and previously exempted products. Veterinary services, auto repairs, and legal services, all of which are rarely small bills, would be subject to sales tax. The modern economy is based off services, and by taxing more of these services, we would be doing the most damage possible to our economy.
The expansion doesn’t only cover consumers. Businesses would have to pay sales taxes on their legal services, accounting services, consulting services, and business support services. All these taxes would be passed on to consumers via higher prices or to investors via lower returns.
To make matters worse, Dayton’s proposal would eliminate the exemption for ready to eat meat. Most college students who don’t have enough time to cook their own meat would be hit over the head with this new tax. Even “personal instruction” would be taxed. That old lady who teaches piano down the street better keep her calculator handy.
The last straw has to be the institution of sales tax on clothing items over one hundred dollars. Consumers come from all over the world to visit the Mall of America to purchase clothing because we don’t have sales tax on clothing.
On top of the sales tax increase, Gov. Dayton has proposed adding another 2% tax rate on families making over two-hundred fifty thousand dollars. This will take millions out of private investments in the state.
Those who get hit the worst by Gov. Dayton are not the rich but the smokers. Better give another ninety-four cents to Father Dayton to smoke that pack.
The Proposal forecasts a compound annual growth rate for revenue from FY14-FY17 to be 4%. This may seem small, but our economy has been very sluggish. This growth in taxes would create a strong headwind for economic development.
A few points of praise are in order for the Governor. Governor Dayton’s proposal reduces corporate taxes from 9.8% to 8.4% and eliminates certain tax breaks for companies. Lower rates with fewer tax breaks promote better business practices. It is important to note that it is unclear whether this washes out all the newly taxed services businesses utilize.
His proposal also decreases Minnesota’s disproportionate dependence on property taxes. Recent budget arguments have caused property taxes to increase substantially, and they needed to be brought back in line.
Finally the school shifts will be repaid under the proposal. This is good news because it means we would be living within our means. While Gov. Dayton’s proposal fails to address real spending problems, the proposal does fix the structural problems in the state’s budget.
The truth is this: We have a spending problem not a revenue problem. Minnesota is one of the highest taxed states in the country, and these increases would put us even higher on the list.