House tax bill contains ticking time bombs

The House omnibus tax bill would take Minnesota in the wrong direction for a number of reasons:

  • It is larger than the projected surplus and is paid for in part through cuts in health care, affordable housing and other critical public services;
  • It grows unsustainably over time, threatening our ability to fund our schools, make college more affordable, and make other investments in our economic future; and
  • It provides large tax cuts for higher-income Minnesotans and business property owners rather than focusing on making the tax system more equitable.

Let’s take a look in particular at the bill’s “ticking time bombs”: tax cuts that grow dramatically larger over time.

The House tax bill (House File 848) currently weighs in at $2.3 billion in FY 2016-17 and $3.2 in FY 2018-19. But the true cost goes well beyond that, because the bill includes several tax cuts that cost much more in the future.

Rough estimates are that the cost of the House tax bill will be over $4 billion when fully in effect. The two largest provisions causing that growth are the elimination of the statewide property tax and expanding the exemption for Social Security benefits.

Eliminating the statewide property tax occurs over six years, with an estimated cost of $2 billion when fully eliminated. Unlike most property taxes, which fund local government services, the statewide property tax is a state revenue source. It is primarily paid by business properties but also by cabins and seasonal resorts.

The state already exempts Social Security benefits from the income tax completely for lower-income seniors and partially for everyone else. The House tax bill would exempt all Social Security benefits by 2019 at an estimated cost of $1 billion, and that cost would grow further as the number of Minnesota seniors grows.

While these tax cuts grow over time, that’s in contrast to the largest tax cut aimed at the middle class, which is temporary and disappears after two years.

Phasing in a tax cut over five or more years does not lower its cost. It just shifts the full cost outside of the budgeting window. That means that policymakers and the public do not have good information about their full cost or to determine whether those tax cuts are sustainable. And putting their full effect years into the future divorces the cost of these tax cuts from the inevitable trade-offs that will have to be made to pay for them — whether that is cutting funding for schools, health care or other critical public services, or raising other taxes.

The danger of tax cuts that grow dramatically over time isn’t theoretical: one delayed tax provision is contributing to a threat to affordable health care we’re dealing with right now. In 2011, policymakers agreed to repeal the health care provider tax at the end of 2019. The provider tax is one of the primary funding sources for MinnesotaCare, through which thousands of working Minnesotans get affordable health insurance.

We are among those who have raised concerns that repealing the provider tax without finding replacement funding would undermine MinnesotaCare. This year’s House Health and Human Services omnibus bill would eliminate MinnesotaCare and replace it with an option that would raise health care costs for working Minnesotans considerably. One of the proponents’ primary arguments for this radical change is that MinnesotaCare’s funding is unsustainable, even though that is a problem created in part by the decision made in 2011 to phase out the provider tax.

In addition to this particular example, we’ve seen what happens on a broader level when the state does too much tax cutting. Large tax cuts passed at the end of the 1990s and 2000s proved to be unsustainable, and were followed by deep cuts in services and a greater reliance on property taxes, double-digit tuition increases and higher fees.

We shouldn’t go down that road again. Policymakers should work toward a smaller, more sustainable tax bill that continues Minnesota’s recent successes in making the tax system more equitable.

Nan Madden is director of the Minnesota Budget Project.

This post was originally published on Minnesota Budget Bites. Follow the Minnesota Budget Project on Twitter: @mnbudgetproject.

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Comments (18)

  1. Submitted by Ron Gotzman on 04/24/2015 - 11:24 am.

    Same old stuff…

    Tax cuts are never “sustainable” but spending increases must be “sustainable.”

    • Submitted by Bill Willy on 04/24/2015 - 06:53 pm.

      So what would that make both at the same time?

      I don’t know if you got the bulletin yet, but exactly one week ago today, April 17th, it was announced that the House Republican State Government Spending Proposal (their budget) surpassed that enormous, outrageous, tax and spend like a drunk sailor, $42 billion budget proposal the Governor put out in the middle of January.

      The new House Republican spending proposal seems to have crept up from the $39.9 billion they proposed on March 25th to $42.6 billion in just under 30 days.

      That pretty much ate up that $1.9 billion surplus they were going to give back to the hardworking middle class families of Minnesota, but that hasn’t done anything to slow down the $2 billion dollar tax cut that’s barreling right along in this year’s smokin’ hot, Don’t stop Believin’ House tax bill.

      And not only that, it’s starting to leak out that that $2 billion tax cut is really a $6 billion or $7 billion Stealth Credit Card tax cut going straight to businesses (and out of the general fund forever).

      You know… That stuff about how Mom and Pop will get 60 bucks a year for two years while businesses will get about a billion or so a year forever?

      So I don’t know… What’s that? Bigger than Democrat spending plus bigger than normally bizarre Republican tax cuts equals what? Double sustainable?

      • Submitted by Ron Gotzman on 04/24/2015 - 08:43 pm.

        enough?

        So if we pass the Dayton budget we will finally have enough money for “education?”

        • Submitted by Bill Willy on 04/24/2015 - 10:28 pm.

          You stumped me

          I’m not sure what that has to do with what I asked about whether or not you think both things – big spending and big tax cuts – would be sustainable (or doubly sustainable) if they were combined into the type of fiscal package Republicans are proposing this year.

          As far as whether or not there will be enough money for education if the Dayton bill (or any other education bill) passes, how would I know? I don’t have any idea how much is too much, not enough, or just the right amount. Do you? If so, please let everyone know what it is so we can finally get that question answered.

          And by the way… If the governor’s spending more money on education (which may or may not be too much) than the Republicans, and the Republicans are spending more money in their overall budget than the governor, what are they spending it on do you suppose?

          • Submitted by Ron Gotzman on 04/25/2015 - 08:13 pm.

            come on …

            You ought to know this – no matter how much is spent on sustainable big education – there will never be enough money to sustain the largest special interest group in MN – big education.

            According to MOve MN – we must raise a huge amount of taxes on the poor and middle class to “fix” transportation. How much to “fix” education? History teaches us that no matter what you spend on trickle down education it will not be enough.

            It takes a lot of money to pay off big education and it will take more next year. History 101.

            • Submitted by Dan Landherr on 04/27/2015 - 09:19 am.

              Interesting choice of words

              Trying to attach “trickle down” to education as a way to tarnish the funding mechanism would seem to be an acknowledgement that “trickle down” economics is a complete failure. However, the economic and taxation policies of the House budget proposal are exactly more discredited trickle down theory.

              You also seem to acknowledge that education is a labor intensive task with few opportunities for productivity enhancements. As a result it will become a larger percentage of spending as other areas of the economy become less labor intensive and more automated.

  2. Submitted by Frank Phelan on 04/24/2015 - 11:49 am.

    For An Organization

    That is sometimes called God’s Own Party, they seem to be unaware of the admonition against putting new wine into old wine skins. This is old school conservative thinking, to cut revenues and be absolutely shocked(!) when there is a deficit. Walker cut business taxes in WI, then mere weeks later said the budget was in chaos and the only solution was to cut public servants’ pay. Slip the Postal Service a poison pill (by requiring them to fund retiree costs for employees who aren’t even born yet), then declare a crisis.

    I’m amazed these folks still claim to be the party of “good fiscal management”.

    This is also the same crowd that bemoans “income redistribution”. Funny, they have no problem using the tax code to funnel more money toward the top, all while spouting the discredited theory that giving the wealthy a larger share of the pie will increase the size of the pie. This ought to be in The Onion.

    Prudent fiscal management my…uh… eye. Seems like they should pay off their party debt and just let the adults run the show.

    • Submitted by Dennis Tester on 04/24/2015 - 10:59 pm.

      The federal tax code

      doesn’t “funnel money” to anyone other than those who don’t pay taxes via something called the “earned income tax credit.” Tax cuts are simply allowing people to keep more of what they earned.

      This misunderstanding of who owns what in this society explains a lot about the left’s problem with taxation. The Onion indeed.

  3. Submitted by Thomas Swift on 04/24/2015 - 02:53 pm.

    The reason tax cuts do not work in Minnesota is they are a cart being put before the horse.

    The fiscally sound approach is to cut duplicate, wasteful and ineffective services first, then follow up with tax cuts after the financial benefit is accrued, but before Democrat legislators find another hole to pour it into.

    • Submitted by Greg Kapphahn on 04/25/2015 - 07:35 am.

      Sing that Old, Old, Song!

      of course it’s stuck with the melody of the old camp song, “This is the Song that Never Ends,”…

      but the funny thing is, when the Republicans were completely in charge of the legislature at the beginning of Gov. Dayton’s first term,…

      they couldn’t come up with a SINGLE example of “duplicate, wasteful, and ineffective services,” to even PROPOSE to cut.

      Nor can they come up with one now, else they would be proposing such cuts. There’s not a SINGLE “let’s stop doing this specific thing” in their budget,…

      but only VERY irresponsible plans and hopes that, if we make it impossible for government to pay for the currently needed programs that it’s operating, someone ELSE will magically find places to cut that won’t do damage to the citizens of Minnesota nor to our society.

      Of course we’ve tried that. We KNOW where it goes:

      it makes bridges fall down,…

      it causes University School of Medicine Professors try to seek profit by taking unconscionable risks with medical studies (a page they pulled from the manual of PRIVATE pharmaceutical companies),…

      it causes our kids seeking to build a better, more successful, more productive life for themselves by gaining a college degree to graduate with massive debt because their tuition has skyrocketed as the result of the state no longer adequately funding higher education,…

      it costs us ALL, and the overall society of the State of Minnesota a great deal MORE than we save in reduced taxes (except for those at the very top who save vastly more from those tax reductions than any of us regular folk).

      For these reasons, the Republican budget proposal is the very definition of “penny wise and pound stupid.”

      It’s the equivalent of structuring your personal spending so that you borrow far more than you can afford and, spend like the proverbial drunken sailor in order to show your friends a rollicking good time, because you know you’re going to die just before the debt collectors can catch up with you.

      It’s the BACCHUS budget: “eat, drink, and be merry for tomorrow we die” budget,…

      as opposed to the Democratic budget which is carefully balanced and structured to stay that way far off into the future.

      Oh, and we’ll seriously consider whether public eduction is receiving enough money,…

      just as soon as our “conservative” friends are willing to consider that there is a level of private executive compensation that’s “enough” and what that level might be.

      Surely there is a level of compensation beyond which no individual can be shown to have contributed enough to the enterprises they own and manage,…

      nor enough to society to be worth compensation in excess of that level,…

      just as there is a level less than which, by virtue of their employer taking command of their life and their ability to perform tasks on behalf of that employer, no human worker should be compensated.

      • Submitted by Thomas Swift on 04/25/2015 - 04:43 pm.

        Windy editorials always drift off into the weeds. You made a valid point in the second paragraph, the rest is superfluous.

        Your point was valud, and it reiterated my point. Tax cuts don’t work in Minnesota because spending cuts don’t preceed them.

        There are hundreds of millions of dollars going to waste. It’s going to take a principled, conservative legislature to get the needed work done.

        • Submitted by Dennis Wagner on 04/25/2015 - 09:53 pm.

          TS

          Where are those wasted $’s? Please start lining them up by budget and line item, you seem to speak from a position of great knowledge and authority.

          Given the GOP creed, the more you cut government spending the better and more efficient they should operate. Meaning we should cut all the budge, they will then generate income and we will all get checks, Correct? Or perhaps the GOP has some other magical formula? Like the ones that nearly drove the state into bankruptcy under TPAW .
          Now why doesn’t the same logical thinking the GOP proposes work for industry and the wealthy? What makes government employees so different than private sector, different DNA, they are all uneducated, wrong blood lines, something in the air, perhaps the water? Please help with the great mystery. Why does Xcel keep demanding rate hikes? Why do executives need such large salaries, shouldn’t we just keep cutting their salaries like government workers and productivity and efficiency will magically improve!

          • Submitted by Thomas Swift on 04/27/2015 - 08:55 am.

            “What makes government employees so different than private sector”

            Private sector employees only have a job as long as people are buying the goods and services they produce. No market, no job.

            Government employees solve the problem by voting for people that will increase taxes indefinitely.

            I hope you find that insight helpful; I’m always happy to help leftists understand the world we live in.

            • Submitted by Dennis Wagner on 04/27/2015 - 08:25 pm.

              As always: Dodged the question

              Where is all that Waste?

              Given the GOP creed, the more you cut government spending the better and more efficient they should operate. Meaning we should cut all the budget, they will then generate income and we will all get checks, Correct? Or perhaps the GOP has some other magical formula?

              Now why doesn’t the same logical thinking the GOP proposes work for industry and the wealthy?
              Why does Xcel keep demanding rate hikes?

              Why do executives need such large salaries, shouldn’t we just keep cutting their salaries like government workers and productivity and efficiency will magically improve!

              • Submitted by Thomas Swift on 04/28/2015 - 09:38 am.

                Let’s start with LGA, which was started as a way to help small rural towns with little or no commercial taxable base keep the lights on, and has morphed into s slush fund for the leftist mayors of Minnesota’s largest cities to fund their political agendas.

                Xcel has been transitioning from cheap coal to more expensive fuels. You are putting your money where your mouth is; be proud.

                • Submitted by Dennis Wagner on 04/28/2015 - 06:41 pm.

                  Come on TS

                  Answer the questions!

                  PS: Not much of a choice with Xcel: What’s the term Monopoly (No competition) ? And the CEO and staff are well into the 7 digit ++ category.

        • Submitted by Greg Kapphahn on 04/26/2015 - 01:08 pm.

          How Easily You Dismiss Any Facets of Reality

          that you can’t bear to face,…

          as being “off in the weeds.”

          Those aren’t “weeds,”…

          they’re an entire forest of ideas based on dysfunctional attitudes,…

          a forest akin to a stand of poplar trees that, although they grow very rapidly, soon start to look bedraggled and trashy,…

          but are darned near impossible to kill once they’ve become established.

          It’s that bedraggled and trashy set of ideas, ideas that have long since proven to be counter productive if not downright destructive,…

          ideas that refuse to die,…

          that now drive Republicans to desert reality and propose dystopian budgets such as the one the Minnesota House has just passed.

          • Submitted by Thomas Swift on 04/27/2015 - 07:43 am.

            Well I have to admit I really couldn’t make heads or tails, Greg. Perhaps you’re right, dysfunction and trashy ideas is a better description than weeds.

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