As its neighbors look to cut and simplify tax systems to attract businesses to their states, Minnesota’s Gov. Mark Dayton has a different idea:
For generations, Minnesotans lived out the progressive argument that high taxes and high services were what gave the state its fabled quality of life. But the patience of business owners is being tried more than ever, as Dayton and the Democrats who now control the Capitol mull a menu of tax increases that would primarily hit company ledgers — just as most states are going the opposite way.
Dayton has proposed tax changes he says would make the system fairer and also bring in $2 billion in new revenue. Much of the gain would come from a state sales tax on “business-to-business” purchases like legal, accounting, banking and printing costs. Few states tax such services. He would also boost Minnesota’s personal income tax rates from eighth to fourth highest in the nation, behind only Hawaii, California and Oregon.
There are some business owners, even lifelong Democrats, who are feeling the pinch and wondering if it’s worth it:
Dik Bolger is a lifelong Minnesota Democrat, a gray-bearded baby boomer with a braid down his back whose Minneapolis printing company’s plant displays work by local artists and sculptors. He backed Mark Dayton for governor, but his take on the Democratic chief executive’s plan for new business taxes could be the voice-over for a Republican campaign commercial.
“We’re screwed,” Bolger said, if the tax goes through. His 79-year-old company competes nationwide and overseas for work with major brands like Chanel. “If you’re bidding for a $100,000 job on a national basis and tax expenses push you a couple of percent higher, then I’m not competitive.”
Some businesses may leave the state, and Wisconsin and South Dakota aren’t being shy about wooing them.
[Walker] had already put Wisconsin “Open for Business” billboards along Minnesota borders; he’s now pushing for a $340 million income tax cut.
South Dakota Gov. Dennis Daugaard’s administration has sponsored print and radio ads and direct mail directed at unhappy executives.
“Tired of Taxes? Call Me,” read the postcards.
I appreciate the AP doing this rare lifelong-Democrats-who-disagree-with-Democratic-policies story, so I wanted to highlight it. We hear quite a bit about “registered Republicans” who are wary of whatever cut, but this is a nice reminder that tax burdens are non-partisan in their effects, and sometimes those effects can be grave. Even though Bolger doesn’t vote Republican, he is a potential ally as he finds himself mugged by Minnesota’s tax reality. He says he won’t leave the state, but look what else he says:
“I’m a 58-year-old Minnesota boy. Wisconsin is probably not in my future,” Bolger said. “But I would have to shrink employees, decent middle class jobs. I thought that’s what this is about.”
There is one tax Dayton’s attempting to lower— the state sales tax. The plan does sound like it would broaden the base and lower the rate, but check out the system the state has been dealing with. It’s such a perfect example of how crony capitalism works to give us an irrational system that rewards whoever knew somebody writing the bill.
Dayton’s budget overhaul has taken blistering criticism from lawyers, public relations firms, accountants and IT firms that would have to charge sales tax on their fees if the budget is approved. But the governor’s plan would lower Brown’s state sales tax from 6.875 percent to 5.5 percent and help remedy a patchwork system that favors some businesses over others, often for no apparent reason.
Minnesota sales tax applies to pet grooming but not barber shops, dry cleaners but not coin-operated laundromats, and calls to 1-900 numbers but not dating services. Super Bowl tickets are exempt, but not hockey sticks.
“The lines have been drawn over the years, and they’ve been relatively arbitrary,” said Myron Frans, commissioner of the Minnesota Department of Revenue. “There’s some people that say the rationale is simply, it depends on who was in the room when the bill was written.”