“That is the task which we begin today: to inaugurate an age in which our will is equal to our hopes. I believe that our people are waiting, and are ready, for such an age. They are waiting for government to catch up with them.” – Gov. Wendell R. Anderson, Inaugural Address, January 6, 1971
Changing our tax code is a long-run project, and it’s controversial every step of the way. There’s a good reason for that: We negotiate and renegotiate our social contract through taxes. It’s where we sort out who pays and how much and for what. Everybody has a stake and everybody has an opinion. The tax changes coming in Minnesota’s next biennium are no exception.
First, what happened? In a nutshell, we, as a state, did five things:
1) we raised $1.1 billion by asking the top 2% to pay 2% more,
2) we closed over $400 million in corporate tax loopholes,
3) we raised another $400 million in tobacco taxes,
4) we raised taxes nearly $100 million on large inheritances, and
5) we did a mini-version of sales tax reform: taxing digital goods and a handful of business services while lowering other taxes.
These are significant changes, but none of them is unprecedented. From time to time we act to modernize our tax code. Gov. Anderson had it right: We are often waiting for our government to catch up with us.
This year was another in which we started to do just that.
1933 and 1971 are times when we enacted similar sorts of tax reforms. In each of these three years, our state increased taxes on the wealthiest, asked corporations to pay more, and reformed other taxes to catch up with changes in the lives of Minnesotans.
The context in 1933
For instance, in 1933 Floyd B. Olson entered his second term as governor. The state was entering the fourth year of the Great Depression. Unemployment was at historic highs. The farm economy was collapsing under a mix of low crop prices and a wave of property foreclosures. The union movement was just a year away from the explosive Teamsters strike in Minneapolis. The lives of Minnesotans were shifting, often painfully, from rural to urban, from agriculture to industry, from relying on family to risking in an impersonal marketplace.
The policy solutions offered around this time (i.e. unemployment insurance, foreclosure moratoriums, minimum standards at work, etc.) were designed to respond to Minnesotans’ problems. To finance these solutions, we raised income taxes, corporate taxes, and instituted a new, post-Prohibition alcohol tax. These tax changes lagged behind these dramatic changes in the lives of Minnesotans by years, if not decades.
In 1971, Wendell Anderson was entering his first term as governor. He was clear enough about the need to update the tax code that he not only called a special session, he vetoed the tax plan the Legislature then sent him. He realized that the state urgently needed to change itself to catch up to the lives of Minnesotans. Since the last major tax overhaul, the suburbs had grown. The children of the baby boom were flooding the schools. The promise of the New Deal was being delivered via a larger public sector.
In response, individual and corporate income taxes were increased. A new sales tax was implemented and property taxes were reformed to increase, equalize, and stabilize school financing in every part of the state, i.e. the Minnesota Miracle.
In 2013, Minnesotans are facing changes (and challenges) that our tax code has yet to adapt to. Many jobs have shifted from manufacturing-based to service-based. Large banks and corporations have pushed a far-reaching “financialization” of the economy that (along with the tax changes of the 1980s and 1990s) has pushed wealth and income inequality to unsustainable extremes. Our tax plan for FY 2014-15 is just starting to respond to these trends that were themselves decades in the making.
The increase of 2 percent on the wealthiest 2 percent (and high-end inheritance taxes) will only begin to relieve income inequality. The tax loopholes being closed will only begin to dismantle the system of preferences that corporations have built into government. The tobacco tax will only begin to cover the accelerating health care costs of an aging population. An expansion of the sales tax to digital goods and certain services will only begin to modernize a tax code that is rooted in an economy that existed decades ago.
An overdue response to changes
Does the new tax plan overreach? Far from it; it’s an overdue response to changes that Minnesotans have known about and supported responding to for years. A tax on the wealthy and the closing of corporate tax loopholes is controversial in only one square mile of Minnesota. (Hint: It’s just to the north and west of downtown St. Paul.) Tax fairness, on the other hand, is popular in other 86,942 square miles where the rest of us live, work, and recreate.
As November 2014 gets closer, state legislators and Gov. Mark Dayton should not run away from this tax plan. They should run to catch up with the rest of Minnesota.
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