What sales tax would Horner back? GOP supporter offers some hints

Tom Horner
MinnPost photo by Bill Kelley
Tom Horner

To close at least part of the state’s $6 billion budget deficit in the upcoming biennium, what sales taxes would Tom Horner increase and by how much?

The answers could well come from Bill Belanger, a Republican who has endorsed Independence Party candidate Horner and the former state senator from Bloomington who spent years on legislative tax committees.

“There are 83 exemptions in the state sales tax,” he said.  “That’s ridiculous.  Essentially, the only big ticket items we tax are cars and appliances.”

Belanger was part of a blue ribbon panel called The 21st Century Tax Reform Commission, appointed by Gov. Tim Pawlenty, which, after a year of work, presented the blue print for a tax overhaul that Pawlenty rejected. The commission recommended broadening the sales tax to include more types of personal consumption, but said exactly what that should include should be determined by the Legislature.

Belanger made it clear that most of those exemptions should be on the table, with the exception of food and prescription drugs. And in a spry bit of table-turning, Belanger said it’s the Republican Party establishment that’s refusing to take a fresh perspective on the budget.

“I don’t have a problem taking a new look at the way government operates, but that means changing things,” he said. “They want to keep on with this antiquated tax system that doesn’t work any more. They can change it and make it better, and even make it revenue neutral.” 

Minnesota needs to come into the 21st century with its tax code and initiate the changes that other states have made years ago, according to Belanger, and that includes changes in the business tax also advocated by the tax reform commission.

For more details of the commission’s recommendations, which may well be the details of a Horner tax plan, go here.

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Comments (10)

  1. Submitted by Richard Schulze on 10/09/2010 - 04:54 pm.

    There are three tax plans. Emmer will raise property taxes. Dayton will raise income taxes. And Horner will use a broad based approach by raising the sales tax.

  2. Submitted by Dan Hintz on 10/10/2010 - 08:30 am.

    Richard, by “broad based,” what you mean is regressive. That is, Horner wants to solve our budget problems by going after those who can least afford it.

  3. Submitted by Ray Schoch on 10/10/2010 - 12:09 pm.

    Here are the commission’s recommendations, abbreviated by yours truly. It’s useful to remember that the commission’s charge came from, and all of its members were appointed by, Governor Pawlenty, whose opposition to taxes on businesses is fairly widely known, even to those of us fairly new to the state.

    1. Exempt big corporations from income taxes entirely

    2. Give a 20 % tax exemption to “S” corporations – single proprietorships and LLC entities (your doctor or lawyer or lawn-mowing company may be incorporated as an LLC)

    3. Proposes that, in the future, the “state general tax” (state tax on business property) be “significantly reduced or eliminated”

    4. Increase business deductions for depreciation of “tangible property” to match federal levels

    5. Proposes change from a refund of sales tax collected on business purchases of equipment for manufacturing, fabricating, mining or refining to an upfront sales tax exemption for those purchases

    6. Extend the above tax exemption proposal to “capital expenditures” by companies that produce services

    7. Simplify the state property tax system from the current 51 classifications to 4 broad categories: agricultural; residential (including residential rental property); low-value commercial and industrial; high-value commercial and industrial

    8. Change “advertised” property tax rates to reflect actual property tax – convert to “mill rates” from current “tax capacity” system. The provided example is revenue-neutral, though actual implementation might be very different

    9. “In an ideal system, businesses should not pay more in taxes than the services and benefits they receive from state and local governments.” The commission recommends a biennial report from the Department of Revenue on the ratio or relationship of business taxes paid to benefits received

    10. Extend R&D tax credit to small business – “S” corporations, LLCs, and other “pass-through” businesses – increase credit to 10%, make it refundable to businesses that have no taxable income. Beneficiaries might well be mostly big companies tempted to move R&D operations to a foreign (i.e., low-cost) country.

    11. Small Business Investment Act – make capital (up to $200 million) available to startup companies from a managed fund created by insurance company contributions. Insurance companies get 80% tax credit for contributions

    12. 30% tax credit to “angel” investors in startup companies with high growth potential, w/$15 million cap annually.

    13. “Encourage” low-income entrepreneurship & business creation loans. This struck me as the least specific section of the report

    The very substantial revenue loss to the state as a result of all these tax breaks for business (my words, not the commission’s) will essentially be made up by higher taxes for individuals. The stated strategy contains only two items

    1. Broadening the sales tax for individuals to include more goods and – especially – consumer services.

    Purchases of goods and services by businesses, according to the commission “…should generally be exempt from sales tax.” The rationale for this exemption is that the taxes “pyramid” (additional tax is paid on something already taxed)

    2. Higher tax on cigarettes

  4. Submitted by andy on 10/10/2010 - 12:13 pm.

    Yeah, I think it’s years past time for people like Brucato, Emmer, Horner, and the people they really represent to start paying their fair share again. Civilization costs money, and even though our moneyed class bitterly resents it, the fact of the matter is making civilization work- even for people they disapprove of- is good for everybody.

    Thirty years now we’ve accepted the frame that giving the “achievers” back “their” money would grow the economy. All they ever did was take the money and run while they laugh and jeer at the small folk knifing each other for the few remaining jobs in the wreckage they left behind.

    It’s time to free up all that stolen capitol and put America back to work.

  5. Submitted by Richard Schulze on 10/10/2010 - 02:01 pm.

    Dan, I respect what you have to say in your thoughtful and and well reasoned comments. This is one area where I respectfully differ from you. And it’s more of a philisophical difference than anything else.

    I like the efficiency benefits of consumption-oriented taxes especially those focused on negative externalities such as tobacco and alcohol. I also like the idea of shared sacrifice.

    There are a number of folks in the DFL including Chairman Tom Bakk of the Finance and Taxes Committee which have supported this approach. It does have merit and bipartisan support. If I remember correctly, even Senator Dayton at one time supported such a measure.

    The philosophy of taxing the rich is misleading. Because it might convince the majority of non-millionaires that Minnesota can solve its budget problems by soaking the rich. Senator Dayton’s plan will have a minimal impact on our near term and long term budget concerns. We have an aging population problem. Health care will continue to to drive our expenses, more so than anything else.

    On a different note, I just don’t see the serious budget cutting in the Senator’s proposals. Along with adding revenue, there needs to be a meaningful reduction in state spending. The State Economist Tom Stinson has stated that adding revenue and meaningful budget cuts will be the long term solution to the deficit. And this will make for politically difficult decisions. Which Mr Horner is well positioned to do.

    Personally, I think it’s silly to put up with a decade of unnecessary pain and suffering before we finally bite the bullet and do what has to be done to stabilize our public finances. And I don’t see any other path that will get us there.

    The right-wing, tea party fantasy that we can solve our fiscal problems only by cutting spending and contracting our way to growth has to be proven by experience to be a failure before rational people can finally put real solutions like a broad based sales tax on the table without being denounced.

  6. Submitted by Dan Hintz on 10/11/2010 - 10:33 am.

    Richard, I give Horner credit for recognizing that raising taxes has to be part a component of solving our budget problems. I just think he is taxing the wrong people. In the 1990s we had higher marginal tax rates for high earners at both the state and federal level, which produced significant revenue and did not hurt economic growth.

    The thing that no one seems to talk about when debating the budget is that the problems don’t come just from runaway spending or excessive tax cuts, but from the fact that revenue is down because the economy is in bad shape. Government coffers were flush with cash in the 1990s because of the record economic growth, but suffered with a basically stagnant economy for the 2000s and have bottomed out with the terrible economic conditions of the last few years.

    To the extent spending is an issue, as you point out, a lot of the problem is health care costs. The Obama administration tried to address health care and was confronted with furious opposition. The result was a weak compromise bill that does little to control costs, which despite being largely market and insurance based, is seen as a socialist plot by a lot of Americans. Any long-term fix to Minnesota’s budget problems is going to require tackling how health care is delivered, but given what happened on the national level, I don’t know how that is going to happen.

  7. Submitted by Brian Simon on 10/11/2010 - 11:58 am.

    I think the interesting question is what kinds of tax policy changes each candidate would sign. For instance, of Horner were elected, and he asked for a sales tax change; whould a DFL-controlled Lege give him what he asks for? Or would they send him the income tax hike & say ‘take it or leave it’? Or could a Horner work with the Lege & trade some broadening of the sales tax for a smaller increase to upper income taxes? i.e. if the beef with the sales tax is its regressive nature, why not offset that with the higher rates for the wealthy (though not as high as Dayton proposes)?

  8. Submitted by Richard Schulze on 10/11/2010 - 03:33 pm.

    Brian is correct. Everything is negotiable. These proposals are starting points. As Brian points out, the legislature is a partner in the process.

    @ Dan, The rich can always pay more, but what are the consequences? We have to make trade-offs between consumption and investment. We cannot do more of both.

    Good economists take the long view. It’s very short sighted to say that the rich can always pay more, of course they can. And we can always burn our furniture to heat our houses, but no one should mistake that for a long term solution or for any kind of wisdom.

    But in the end, we need to focus on paying for what we get with minimum distortions, not on classes of people. If that means wealthier people pay more let’s be clear that this is efficiency and not justice.

  9. Submitted by Bernice Vetsch on 10/11/2010 - 04:23 pm.

    Yes, revenue is down because the economy is BUT there’s also the billion dollars a year in revenue forgone by Pawlenty for eight long years. More than enough to have prevented the current shortfall.

    Any number of wealthy Minnesotans have asked that the state return to the income tax levels of 1999, before the cuts from Ventura and Pawlenty. They’ve seen the damage done to our state and its future and want to start reversing it.

    Our “antiquated” system works just fine when we actually use it as it was intended.

  10. Submitted by Richard Schulze on 10/11/2010 - 06:59 pm.

    Ms. Vetsch, There’s often a functional misconception among liberal politicians and the roughly 50% of us with no federal income tax liability that the rich, or business, or CEOs and bankers, or fill in your preferred “other”, represent this infinite ocean of resources that can be taxed forever without consequence to the economy at large. And yes you are correct, our tax system is antiquated. Reform is many years overdue.

    The fundamental issue here is this: We’ve run out of other people’s taxes to raise. We’re going to raise yours – whoever you are.

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