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‘Temporary’ taxes become permanent? Minnesota has mixed experience

Courtesy of the Office of the Governor
“In Minnesota, the history shows that we’ve had surtaxes that have been repealed,” said Revenue Commissioner Myron Frans.

When House Democrats this week suggested a temporary surtax on top Minnesota earners, Republicans instantly pounced.

House Minority Leader Kurt Daudt leveled the harshest criticisms, saying, “There’s nothing more permanent than a temporary tax.”

His concern hasn’t proved wholly true in Minnesota, though, where lawmakers passed a 7 percent temporary surtax in 1981 to deal with budget deficits. Lawmakers raised the rate to 10 percent in 1982 and extended it for another year.

But Myron Frans, the governor’s revenue commissioner, noted that the Legislature repealed the tax in 1984.

kiedrowski portrait
umn.edu
Jay Kiedrowski

Jay Kiedrowski, a budget expert who was state Finance commissioner at the time, said that the “trigger tax” helped the state balance its budget during an economic recession.

“In Minnesota, the history shows that we’ve had surtaxes that have been repealed,” Frans said.

However, not all taxes billed as temporary have remained that way. Lawmakers in 1937 passed a temporary gas tax increase to 4 cents a gallon that was made permanent in 1941. Income taxes were also temporarily raised in the 1960s, and those rate hikes were later extended, according to the Minnesota Tax Handbook.

The Minnesota sales tax was also temporarily increased to 6 percent in 1982, a change that was made permanent the next year, and a temporary increase to 6.5 percent in 1991 never got phased out.

“I think the key [to making a tax temporary] is the Legislature has to take responsibility for enacting any kind of a surtax and making sure there’s a workable blink-on or blink-off, or remove it when they don’t need it anymore.”

And that’s the approach House DFLers outlined.

They want to use a surcharge on the top 1 percent to pay back the remaining $800 million-plus that’s still owed schools from times legislators shifted education funds to solve earlier budget deficits. House DFLers envision a “blink-off” surtax that would expire after the money has been repaid over two years.

The plan hasn’t earned much support from Gov. Mark Dayton or Senate Democrats. House Speaker Paul Thissen, though, billed it as an “elegant” solution to repaying the state’s obligation to schools.

Frans is not overly enthused about the House plan, either.

He said it would be difficult to implement and hard to adjust the tax rate on the fly in the way lawmakers have described.

Thissen imagines the rate could tick up or down, depending on how fast the state’s obligation to schools is met.

Kiedrowski, who hadn’t seen any specific legislative provision, said it’s likely the Legislature would give Frans the power to shut off the tax.

Kiedrowski also pointed out that lawmakers have made it work in the past.

“I think if the governor was in favor of it, Commissioner Frans would find a way to make it work,” he said. “If it becomes law, I think he’ll find a way to implement it.”

Frans also raised some concerns with Wednesday’s Senate DFL budget proposal.

Senate Majority Leader Tom Bakk said the caucus plan might include a tax on the wealthiest 5 percent of Minnesotans, rather than the top 2 percent targeted by the governor.

Frans said about 125,000 people would be affected if Senate Democrats go after the top 5 percent. He said the income level for joint filers would drop closer to $130,000, rather than the $250,000 limit that Dayton is looking to use to raise $1.1 billion in new revenue.

The governor, Frans said, is adamant that new taxes not target the middle class.

“That’s a problem, and we have to look at that,” he said. “I think that’s why the governor’s always focused on the top 2 percent, so we’ve got to be careful when we go beyond that top 2 percent.”

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