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Conservative think tank agrees with sales tax expansion

mnpACT! Progressive Political Blog

The business community is doing a full court press on business service sales taxes. They don't like it. And again, without any proof or fact based arguments, they say it will "kill jobs". 

You know, really, in business and GOP world, everything kills jobs. It is a wonder we have any left.

But I digress.

I want to point out the Pioneer Press editorial which, again without any proof or documentation, espouses the business view of business to business service taxes.

The editorial points this out:

Business services were the second-largest source of employment growth in Minnesota over the last decade. 

And I am sure that is true. We are now in a service dominated economy...which is the very reason that Dayton's proposals must be examined carefully. They are bringing our sales tax laws to an updated and more current method of taxation. 

The editorial quotes the Minnesota Business Partnership's Charlie Weaver with the usual argument:

"We're hopeful our message is getting through" -- that the business-to-business sales tax will cost Minnesota jobs and put Minnesota companies at a disadvantage when they compete across the country and across the world, Weaver said. 

Question remains, how do they really know?

It is interesting to note that an article in today's Daily Caller seems to call on Republicans to embrace the business service sales tax. (It should be noted that Gov. John Kasich of Ohio is actually proposing a very similar sales tax expansion to Gov. Daytons).

Quoting the Daily Caller:

The tendency to exempt most services (as opposed to goods) from sales taxes is one of the greatest weaknesses of current state tax codes. Sales taxes are a major source of funding for state governments, providing, on average, about a third of all revenues. But over the years, sales-tax bases have eroded, due to the rise of online commerce, states granting exemptions for basic necessities such as food and clothing, and consumers spending a greater share of their incomes on services and less on goods. In 1935, when Ohio’s sales tax was first designed, sales of goods constituted 56.5 percent of all personal consumption in the U.S., and services only 43.5 percent. Now, two-thirds of all spending is on services and only one-third is on goods.

The author of the piece address Republicans directly:

Republicans now hold complete control of 25 state governments, and several Republican governors have recently proposed major tax reforms. But, thus far, only Kasich and Bobby Jindal of Louisiana have grasped the advantages of service taxation. (Jindal has proposed a tax reform package that includes service taxation, but has not yet released the details.) More Republicans should make service taxation central to their tax reform plans.

(Emphasis mine)

And the articles conclusion is also worth noting:

Pursuing service taxation would allow Republicans to seize the high ground in tax policy debates, to be known as the party committed to improving tax codes by making them fairer, more efficient, and better-suited to the service-based economy of the 21st century.

Seize the high ground? Why if you ask Minnesota Republicans about such things, it is as if you have spoken sacrilege.

It should be noted that the author of this Daily Caller article is Stephen D. Eide, a senior fellow at the Manhattan Institute’s Center for State and Local Leadership.

And, you may ask, what is the Manhattan Institute’s Center for State and Local Leadership?

The Manhattan Institute for Policy Research (renamed in 1981 from the International Center for Economic Policy Studies) is an American conservative, market-oriented think tank established in New York City in 1978 by Antony Fisher and William J. Casey. The organization describes its mission as to "develop and disseminate new ideas that foster greater economic choice and individual responsibility". 

Hmmm...conservative, market-oriented, economic choice, and individual responsibility. Sounds like Conservative-Speak to me.

I firmly believe that if Minnesota leads the way in this sales tax expansion reform, that more states (not only Ohio and Louisiana) will be jumping on this bandwagon.

Trade offs should be made. Governor Dayton has given corporations income and property tax breaks that can negate some of the service tax expansion "costs".

But, unless we move forward with this, our sales tax revenues are going to continue to fall furthur behind our revenue needs.

Unless the Pioneer Press and the business community can offer more proof of harm than rhetorical statements, this needs to happen.

Even Conservative think tanks agree.

This post was written David Mindeman and originally published on mnpACT! Progressive Political Blog. Follow Dave on Twitter: @newtbuster.

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Comments (2)

The difference between

The difference between Kasich's actual reform and Dayton's faux reform is Kasich broadens the sales tax and lowers income taxes. That's a real change to the mix of state tax collections. Dayton broadens the sales tax and artificially lowers property taxes via a new $1.4 billion state spending program. Expanding the sales tax, spending $1.4 billion and pretending to lower a tax rate the state doesn't even set isn't reform. It's public relations for liberalism. Republicans aren't going to get behind a PR plan for bigger state spending and reduced accountability.

I can understand

why conservatives would support a sales tax increase, especially as an alternative to an income-tax increase.

What I don't understand is why so many Democrats now promote new sales taxes and so few voices speak critically about them. There's a social-justice issue here. Unless you're careful to tax only luxury items, sales taxes are regressive; they burden lower-income people more than the middle class or the rich. Income taxes, in contrast, are progressive and can be progressively graded to reflect people's differing ability to pay. Corporate taxes might be progressively graded in the same way, to spare small businesses and rein in the big ones, though this seems to be an idea that nobody is pursuing.

There may be good macroeconomic reasons to broaden the sales tax base, but I am not happy about relying on regressive taxes to balance our budget. After all, it is not the fault of the poor that we are now in a recession; it's wealthy bankers who are responsible.