Profiting or providing? Minnesota Legislature weighs corporations’ role in state’s economy

A recent exchange in a House committee hearing between DFL and Republican lawmakers over the role of capitalism illustrated a significant political question that dominates the debate over taxes and regulation: Are corporations good or bad? Are they positive to the state, or a drag?

By both policy and rhetoric, DFL lawmakers and Gov. Tim Walz, have taken aim at big business and the wealthy as a centerpiece of their agenda. Attempts to change the tax code to get corporations to pay their “fair share” have been proposed, as was last year’s change to the individual income tax that phased out deductions for high earners. And increased regulation meant to reign in what are seen as corporate excesses are also prominent in DFL-led committees.

This year, two proposals have gotten most of the attention — a bill to require large corporations to disclose their state income tax filings and a cap on the number of single-family rental units a company can own. Investor-owned single-family housing is increasing in the U.S. and a Minneapolis Federal Reserve study reported that it makes up 3.4% of single family home ownership in the seven-county metro area. It’s a trend seen nationwide.

Rep. Esther Agbaje, a DFL member from Minneapolis, was asked last week by Republicans why she was pushing a bill that would cap at 10 the number of single-family homes one business entity — primarily corporations — could own. And if consolidation was a problem, why not apply it to non-profit housing providers?

“The issue with housing is that it is becoming much more commodified and housing is being used as a way to make profits,” Agbaje told the House Judiciary and Public Safety Committee. “It is actually a necessity for people. It is where they live. It is where they take care of their families.” But it is harder to find housing “when a number of corporations see that property as a source of income for themselves whether the person living there has an increase of income on their own.”

But her defense of her bill was seen by GOP members as a criticism of capitalism itself.

“Thank you for clarifying the real philosophical difference at the heart of this,” said Rep. Harry Niska, R-Ramsey, “which is whether capitalism is a useful tool to encourage investment in things that are helpful to people.”

Responded Rep. Leigh Finke, DFL-St. Paul: “It is a philosophical difference, Rep. Niska. Providing housing is what our side’s philosophy is about. Not providing profits.”

This committee debate was about housing, specifically ownership of single-family homes. But corporations have been frequent rhetorical targets by Democrats nationally and in the state. After receiving an updated revenue forecast in February that saw increased tax collections driven heavily by higher corporate earnings, Walz was asked about DFL approaches to corporate taxation.

“A study came out this week that said the average corporate tax rate in America is 5%,” he said when asked about the state corporate franchise tax. “Workers who are caring for our children or caring for our seniors are paying 16%.”

Walz said he considered it a myth to say the only way to attract business is with low taxes and pointed to the role taxes on corporate profits played in the better-than-expected revenue forecast. The tax treatment of corporations is at a proper balance, Walz said.

“I’m not interested in raising corporate taxes, but I’m not interested in cutting them either,” he said.

The conservative Tax Foundation now reports that Minnesota has the highest corporate tax rate among the states. But House Speaker Melissa Hortman frequently says that while the rate — what she calls the sticker price — is high, the rate after deductions is less striking.

Mark Haveman, the executive director of the Minnesota Center For Fiscal Excellence, said that Minnesota’s largest corporate tax breaks are pretty common and that the state doesn’t stand out for its generosity toward corporate taxpayers.

“I would say Hortman’s claim is accurate for individual income taxation, at least for some,” Haveman said. Last year’s tax bill phased out a set of deductions for high-earners, what Haveman calls a back-door fifth tier for top incomes that was proposed last year but not adopted.

A recent study found that Minnesota has the country’s most-progressive tax system. Regarding corporate taxes, a memo written by Minnesota House Research estimated that while the state corporate franchise tax is 9.8%, the effective tax rate that factors in tax code subtractions, credits and deductions was 8.43% in 2021. That effective rate is up from 7.21% in 2019.

The forecast led some DFLers to argue that corporate earnings are up not in spite of DFL policies but because of them. After hearing a briefing on the February forecast, House Taxes Chair Aisha Gomez said she is often accused of trying to jam corporations.

“This is, overall, a really good picture for our state,” the Minneapolis DFLer said of the revenue report. “We have to push back against this assertion that we’re being unfair to corporations by, for example, even having a corporate franchise tax.

“We have to engage on this issue,” she said. “The value proposition of Minnesota is not that we’re a no-tax, low-tax jurisdiction. It’s not a place where you’re going to benefit from our good workforce and the healthy environment and the investments in health care and housing and not pitch into the common good.”

A batch of bills moving in the Legislature are aimed at making additional changes to how the state regulates corporations.

• Single-family home ownership: Agbaje’s House File 685 would put a cap on the number of single-family homes single companies can own. An earlier version required the sale of houses in excess of the cap but currently the bill would assess a $100,000 fine for each house. The Fed study found that companies investing in this market often outbid other buyers with cash offers. Some companies have been found to be unresponsive to concerns about poor conditions of rental houses.
• Tax transparency: Rep. Emma Greenman, DFL-Minneapolis and Sen. John Marty, DFL-Roseville, have bills to require the disclosure of the state tax returns of the largest companies after three years, those with gross profits of $250 million or more. The sponsors say the date would help lawmakers know the effect of corporate tax rates but business lobbyists say it would violate privacy and likely run afoul of federal rules against disclosure of any federal tax details on individual tax filers.
• Hospital salaries: HF 1397 would put caps on the pay of top executives of nonprofit hospitals.
• Debt collection regulation: The Debt Fairness Act would regulate medical debt collection. House File 1814 and Senate File 2770 would, among other changes, prohibit the sale of medical debt to debt collection agencies and ban the reporting of medical debt to credit agencies. 
• Corporate tax study: HF 4535 by Rep. Mike Howard of Richfield and Sen. Alice Mann of Edina would require the Department of Revenue to study the impact of “corporate tax base erosion” on Minnesota tax revenues. 
• Health care acquisitions: HF4206 and SF4392 would place a moratorium on acquisitions of health care providers by private equity and real estate investment trusts. 
• Employee classification: HF4444 and SF4483 result from an attorney general task force on what is termed misclassification which occurs when businesses — especially those in construction — call workers contractors when they should be employees. This denies those workers of benefits such as jobless insurance, overtime pay, health care and injured worker protections. 

Bills have also been introduced to regulate so-called junk fees and give farmers the right to repair their own equipment. An attorney general request to update state antitrust laws was not heard in either chamber.

“Maybe if your business is too big to fail, maybe it’s too big to exist,” Attorney General Keith Ellison said. “Everything we’re talking about is pro-competition. It’s actually kind of conservative.”

In addition, Gomez held a hearing earlier in the session on corporate consolidation and mergers that she said make it harder for smaller businesses to compete. Anti-consolidation has been a focus of the Minnesota Farmers Union.

“Every community has an example of the impact of concentrated corporate power. It might be a closed hospital or factory, the loss of local retail jobs due to a new big box store or e-commerce giant or the loss of family farms because of powerful agribusiness companies, and more,” wrote Justin Stofferahn, Antimonopoly Director of the farm group.

Walz tempers his rhetoric with frequent visits to ribbon cutting and expansion announcements. He also has been making a series of phone calls to corporate executives over the last several months — from Polaris and Winnebago to Medica and Aircorp Aviation.

Walz spokesperson Claire Lancaster said the meetings are mostly with small and medium-sized companies.

“It’s part of an effort to get regular feedback from business leaders and encourage them to expand in Minnesota,” she said. 

Minority Republicans and business groups have pushed back on many of the bills — as well as what they see as the underlying philosophy behind them. During a hearing on the corporate tax return disclosure bill, Sen. Steve Drazkowski, R-Mazeppa, repeatedly asked Eric Harris Bernstein of the We Make Minnesota coalition — which represents labor and progressive religious organizations — if businesses had a right to privacy. After being unsatisfied with the answers, Drazkowski said, “You represent a radical consortium of unions and your contempt for corporations is very evident.”

Bernstein for a time included the quote on his social media bios.

Doug Loon, the president and CEO of the Minnesota Chamber of Commerce, said the rhetoric around corporations is a national political phenomena that groups like his try to counter.

“The reality is, business today requires lots of capital, and there are a lot of different ways that capital is brought together to create projects,” Loon said. “The same thing applies to housing or child care facilities. Everything requires capital. The question is, does it come to Minnesota, does it stay in Minnesota, do we deploy it in our communities?

“If we are going to push away investment because our permitting process or our taxation or our regulation are overly burdensome, what’s it going to do? Capital is mobile. You want to nurture that in a way that supports Minnesota, not just the private sector economy but supports Minnesota,” Loon said. He was critical of the bill to require large corporations to disclose tax returns, calling it punitive and  “the art of intimidation.” It would cover about 4,500 tax returns.

“And it sends a signal to businesses that want to move to Minnesota or do business in Minnesota that you’re not trusted,” Loon said. “We have to have trust. We have to support businesses, not vilify businesses.”

Monday, legislative Republicans used Tax Day to call attention to tax and fee increases adopted last year and to again criticize DFL decisions to reduce the size of tax rebates and not eliminate taxes on Social Security in their entirety.

In response to questions about this year’s proposals, Rep. Greg Davids, the lead Republican on the House Taxes Committee, said he is running out of reasons to tell businesses why they should expand in the state, or even remain.

“The Legislature last year made it very tough because they’ve taken away good arguments I used to have,” the Preston lawmaker said. A regular feature of the Taxes Committee is Davids questioning anyone who complains that corporations and the wealthy are not paying their fair share.

“The fair share is I’m gonna take everything I can from you and that’s fair,” Davids said. (Here is Rep. Greenman’s answer to one such inquiry.)

Sen. Carla Nelson, R-Rochester, said she thinks higher corporate taxes do two things, both negative. First, they discourage location and expansion decisions in the state. Second, corporate franchise taxes are pass-through taxes. That is, they aren’t paid by the company but instead result in lower wages for workers and higher prices for products.

“To say that corporations don’t pay their fair share — which is a line we’ve probably heard too much — assumes that they are not,” Nelson said. “We have the highest tax rate, higher than California even. We should not be the top.”