Gov. Mark Dayton abandoned his business-services tax proposal less than a week before hundreds of Chamber of Commerce members will descend on the State Capitol for some straight talk with their legislators.
On Wednesday, about 700 to 800 Minnesota Chamber members will listen to the DFL governor at a luncheon speech in downtown St. Paul. Then they’ll take buses up the hill for some candid conversations with lawmakers about how the governor’s budget affects them and their companies.
If Dayton had held fast to extending the sales tax to services such as legal and advertising, there’s no doubt that the Chamber’s 20th Annual Business Day at the Capitol would have been used to pillory that proposal.
By taking that much-maligned services tax off the table, Minnesota’s governor is clearing the path for his business critics to channel their energy to try to block Dayton’s attempt to raise income taxes on the wealthiest Minnesotans.
“We don’t have to have all of these tax discussions,” David Olson, Minnesota Chamber president, said in a MinnPost interview. “There is very little spending reform in the budget.” He wants to see more attention paid to controlling government spending.
The Chamber has been fighting Dayton’s campaign to create a fourth income tax tier, which would raise tax rates on single residents earning more than $150,000 in taxable income and on married couples with taxable incomes above $250,000.
Minnesota legislators are expected to get an earful from business owners and operators on Wednesday because many Minnesota companies flow their business income through their personal income taxes.
Since the DFL governor dropped the business-services tax idea on Friday morning, Olson acknowledged that action elevates business concerns over the income tax hike, minimum wage boost and energy costs.
“In all of my years in this business, I’ve never heard more outrage on an issue than the business-to-business tax issue,” Olson said.
The Chamber leader said that Dayton’s decision to scuttle the tax idea demonstrates that “he cares about Minnesota jobs.” After the business-services tax idea was unveiled, some company leaders talked about relocating their businesses. “[Dayton] finally realized that this would have a dramatically negative impact,” Olson said.
By killing off the business-services tax idea in early March, Dayton also has positioned himself to challenge the business community to work with him in redesigning government services to make them more efficient and effective.
During his Wednesday speech to the Chamber, the governor can highlight the fact that he listened to the business community and responded to their concerns. But he also can seek a reciprocal relationship and ask business people to devise solutions, not simply oppose tax and spending levels.
The desire for a give-and-take exchange was evident in an e-mail that Kathy Tunheim, Dayton’s senior advisor on business and jobs, sent to business leaders on Friday afternoon.
Dayton announced that he was dropping the business-services tax during an appearance at the TwinWest Chamber. In the aftermath of that decision, Tunheim wrote that the governor’s “fundamental commitment” on the state’s overall finances remains the same.
“The budget for the next biennium must be honest — no gimmicks — and must begin the process of restoring Minnesotans’ confidence that we can and will make important investments to ensure the state’s long-term competitiveness,” Tunheim wrote.
The latest revenue forecast shows that the governor and legislators are facing a projected deficit of $627 million for the next biennium, which is down from an earlier estimate of a $1.1 billion revenue shortfall.
The Chamber contends the elected leaders should take a “revenue-neutral” approach when devising their tax reforms.
The business group also favors setting statewide spending priorities and identifying “measurable outcomes.” The governor’s budget is moving in the direction of focusing on results or outcomes.
Olson said there is still time during this legislative session to craft reforms for the delivery of government services. He cited health care as an area where the state can do more to “provide better care more efficiently.”
Tunheim highlighted some common ground with business. She wrote: “Even as business people shared with us their concerns about the sales tax expansion, almost everyone also applauded the decision to invest in early childhood, in post-secondary education and in economic development tools designed to ensure growth in good jobs for Minnesotans.”
Dialogue between the Dayton administration and the business community will continue. It will be particularly spirited on Wednesday when business people from all corners of Minnesota converge on St. Paul.
Fedor can be reached at lfedor@minnpost.com.
Competitive Position
My questions to Liz Fedor are: 1) does an increase in income tax increase or decrease Minnesota’s competitive post ion with other states? and 2) does an increase in income tax increase or decrease Minnesota’s employment?
Questions about your questions
I claim no expertise as an economist, but I do operate a sole proprietorship, pretty much the definition of “small business.”
“…does an increase in income tax increase or decrease Minnesota’s competitive position with other states…” Minnesota’s “competitive position in regard to… what? I’ve not encountered any evidence that higher individual income taxes prompt a wholesale, or even selective, departure by businesses from one state to another. Nor have I seen any evidence of corporate CEOs refusing to take positions offered to them in Minnesota because the tax rate here is higher than in some other state.
As a small businessman myself, I certainly wouldn’t move to South Dakota in order to have lower income taxes. In fact, my income taxes here are already substantially higher than they were in my previous state of residence. People, and businesses, move for lots of reasons, many of which have nothing to do with a state’s tax policy regarding individual incomes.
“…does an increase in income tax increase or decrease Minnesota’s employment?” I’ve once again not encountered any evidence — lots of opinions, but no evidence — that individual income tax policy has any significant effect on employment in a particular state, including Minnesota, either pro or con. Businesses don’t hire new employees based on personal income tax policies. Business tax policies, perhaps, given the usual myopic viewpoint of C of C members, but personal income tax policies don’t appear to have any effect on employment.
The fact that many small business owners funnel their business income through their individual tax returns, as I do, and as is noted in the article, is largely irrelevant. Income is income. As someone who’s never managed to reach the median income of the metro area where I lived, wherever that happened to be, it’s worthwhile to note that the level proposed is about 3 times the median income of the Twin Cities area. If I ever reached the point where my personal income was 3 times that of the “average” household around here, I’d be happy to pay higher taxes.
Those who have more should expect to contribute more to the society that enabled their success.
A note
on median income and average income. The “mean” is the “average” you’re used to, where you add up all the numbers and then divide by the number of numbers. The “median” is the “middle” value in the list of numbers.
According to the U.S. Census, the median household income for Minnesota from 2007-2011 was $58,476. I was unable to quickly locate the average household income.
Using these numbers, a household income of $250,000 is more than 4 times the median.
Thanks to Purplemath.com
To be fair,
let’s also hear (1) whether a decrease in state spending increases or decreases our overall, long term competitive position with other states and (2) whether a decrease in state spending increases or decreases Minnesota’s overall short term and long term employment.
Specifics and examples would help
readers understand the issue. What are the current rates, how much is the proposed increase and what would it actually cost a family with a taxable income of $250,000 – $300,000- $350,000-$1,000,000?
Let’s see exactly what were talking about.
Past History Proves
That increases in the state’s income tax, especially for the highest earners, result in increases in employment for average Minnesota workers and an increase in the incomes of those employed.
Meanwhile, it would seem that Minnesota’s “Chamber of Commerce,” on the state level is populated with people who believe that, despite their own massively higher than average incomes, someone ELSE must pay for all the infrastructures that make Minnesota a good place to locate their businesses.
These sad and sorry chiselers, con men, and ripoff artists must be causing their far healthier and more functional business-leader ancestors to spin in their graves.
Luckily, at least a few of them are the “cut off your nose to spite your face” types that will leave the state if we raise their taxes,…
and will take their destructive selfish and self-serving attitudes to other places,…
leaving room for more home grown Minnesota businesses to build our state’s prosperity until we’re back up riding higher than the surround states,
you know, the way we used to be before the false prophets of “no new taxes,” and “smaller government” began to try to fix “the state works” by giving it a “better [for owners and managers] business climate” and less [effective] regulation.
It’s been downhill ever since we started listening to these folks who insisted on building policies based on what they “truly believed” must CERTAINLY be true (and ignoring the massive evidence that proved that doing the opposite of what they so desperately wanted to do would be the wisest course.
That is an easy question Mr. Downing
1. It probably has no impact for two reasons.
A. Minnesota is already rated pretty far down on the list – how much worse can we be.
The Tax Foundation http://taxfoundation.org/article/2013-state-business-tax-climate-index already lists Minnesota as 45 out of 50 as having a poor tax climate. Incremental changes in income tax are probably not going to significantly change that.
B. On the other hand Taxes are a minor consideration to businesses. While businesses complain taxes are off set by other factors and the state is very good at providing those.
The Tax Foundation also reported that Taxes are a very minor consideration i n the decision to locate or expand businesses. http://taxfoundation.org/blog/taxes-and-business-location-decisions
We have recent evidence that taxes don’t play as significant a role as other factors.
Here in Minnesota if taxes were a significant consideration JOBZ would have had smart business owners shifting their operations to JOBZ zones en mass because it was the best “get out of taxes” idea ever introduced. While some took advantage of the idea many didn’t.
2. It should increase it.
It would seem to me that with a shortage of consumer demand and money is being retained by people who only have a propensity to consume 53% of their income based on the 2011 Consumer Expenditure Survey (CEX) http://www.bls.gov/cex/ it may be better put to use making investments in those things businesses care about – see above reference – like work force and and transportation. Wages for people in those industries are such that they will be more likely to continue to spend or consume a greater portion of their income and stimulate demand.
More money circulating in the economy is more money stimulating demand.
To ponder Mr. Hamilton’s question on State Spending
1. Does a decrease in state spending decrease our competitive edge?
Apparently if the decreases impact the quality, availability or healthiness of the the labor force (training, and health) and the quality of the transportation system then there would be an adverse impact on business.
2. A decrease in spending and impact on employment.
I would love to talk with the person who convinced people that some how a dollar spending by a government was different than a dollar spending by a business. There is the theory of dead weight loss in government but having worked for both sectors I can tell you that dead weight loss in corporations is probably higher. It just take the form of excessive perks, marketing, and fuzzy business deductions.
A dollar is a dollar. The most effective spending is spending on local capital – infrastructure – although I would definitely say there are enough buildings in the state government complex in St. Paul and too little spending on transportation and Greater Minnesota infrastructure.
The best spending a government can do in the short run to stimulate the economy is infrastructure spending on the backlog of maintenance and repair projects that every government has. This may sound old fashion but things like the WPA and Civilian Conservation Corps were great investments in both people and the country.
Improved infrastructure and high quality labor can lead to long term competitiveness and job growth.
Now if we could only do something about the weather. That coupled with the distribution of our health care system would make us the mecca for retiree’s.
Past History Proves
Some very relevant and valid points: Lets take them a step further Where is all the anguish about the “Average Tax Payer” shelling out “$Billions” to aid the likes of the Vikings, Timber Wolves and Twins owners for stadiums? Or Perhaps the myriad of special tax breaks for businesses?
The ultimate goal that we will reach by choice or default will be a return to Feudalism, much of which is already in place today. We pay a premium on Electricity, Gas, Phone, city services etc, mortgages, so that “Investors and or Bond Holders make a profit” This depending on who is looking is nothing more than a tax on the masses to benefit the few, the sole objective a return to the feudal order of the12-1600’s. The laws are manipulated by the wealthy to serve the wealthy. Been going on forever, and in full public view today!