Tax Commission: Broaden sales tax and hike cig taxes to pay for business tax cut

Posted at 12:54 PM on February 13, 2009 by Tom Scheck (4 Comments)

Governor Pawlenty's Tax Commission released its recommendations today. They say the state should eliminate the corporate income tax and provide several other business tax breaks to make the state more competitive. In order to pay for it, the commission recommends a cigarette tax increase of $1 a pack and broadening the sales tax (to possibly include a sales tax on clothing, on services, etc.).

Here's the report.

Governor Pawlenty reportedly is in favor of cutting business taxes (his budget plan would cut the corporate tax in half) but isn't in favor of the tax increases.

UPDATE: Here's a comment from Governor Pawlenty's spokesman, Alex Carey:

The Governor is interested in making Minnesota a more job friendly state - that's why he proposed reducing taxes on job providers. However, he does not like the idea of raising sales taxes on consumers and is not embracing that portion of the commission's proposal.

I'm trying to confirm where the governor stands on increasing the cigarette tax.

(Update: Pawlenty's spokesman told me that you can "infer" where Pawlenty stands on the cigarette tax increase by looking at his budget proposal, which doesn't include a tax hike in it. When asked if he was not willing to support a tax increase on cigarettes, Carey referred me to his budget proposal. I followed up: So he's not willing to take it off the table? Carey: Let me call you back. Pawlenty told WCCO-AM "We have to be careful about shifting more and more of the tax base to consumers, particularly the low income." He didn't say he opposed it.)

Update: Here's the latest e-mail statement from Alex Carey:

The Governor considers cigarette taxes to come under the heading of taxes on consumers, which I mentioned in my statement before.

I asked Carey to give me a simple yes or no answer since Pawlenty is usually unequivocal in his opposition to tax increases.

Update: I just talked to Carey again. He said "Governor Pawlenty does not embrace the sales tax portions of the proposal. So no, he does not support a cigarette tax increase."

Question of the Day: What do you think of the idea?

Comments (4)

Hard to believe. Cut tax for rich and increase tax on middle class. What a poor plan.

Posted by Donald Sonsalla | February 13, 2009 1:31 PM

For my part, it seems like idiocy. Pawlenty pushing for the tax cuts he wants at any cost. Given that we have the most Fortune 500 companies per capita of any metropolitan area, eliminating the corporate business tax would be crippling.

A further increase on the cigarette tax? Every study I've seen says that the higher the price goes, the more people quit. Bumping the tax up (significantly) means more people quit, and the tax doesn't generate the revenue he expects it to.

Not to mention, a sales tax on clothing/services? Regressive taxation. He may as well ask for a flat-rate tax while he's at it, and get rid of the MN income tax.

What about bringing smoking back to charitable gambling and bars that make >50% of their income from alcohol, to bring those revenues back up to where they used to be?

Posted by Ryan | February 13, 2009 1:32 PM

Wait, what? After the updates, it comes out that Pawlenty's stance is to flat-out cut taxes with no way to recoup the revenues during a budget crisis?

Posted by Ryan | February 13, 2009 2:46 PM

Well, I dunno, Ryan. Pawlenty's raised the cigarette t- uh, I mean, fee before. He might just be ruling it out for the moment and keeping it as an option for the end of session. As Obama has been learning, you don't start negotiations with the compromise. You start out with your optimal position (corporate tax cuts with no way to pay for them), and then work your way towards the compromise (corporate tax cuts paid for by everyone else). Pawlenty has had no problem with regressive taxation (cigarette "fees", property taxes, a myriad of other fee increases) in the past, so I expect he could live with this as a final solution.

So far, the DFL hasn't declared Pawlenty's tax cuts DOA. Whenever DFL leaders are quoted in the press, it's usually something like "I have some concerns, I'm awaiting more information, I'm not ruling it out, waffle waffle waffle." I don't know if this is part of a conscious strategy (let Pawlenty have some tax cuts in return for something the DFL wants) or if their proximity to power means they have to listen to the constant bellyaching of corporate board members ("stakeholders in the Minnesota community" to use Capitol-speak) and they've absorbed some of their values, or some combination of both.

Posted by Chris | February 13, 2009 5:59 PM

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