Q&A: Analyzing the candidates' tax plansby Cathy Wurzer, Minnesota Public Radio
St. Paul, Minn. — The tax proposals from the three candidates for governor reveal three very different philosophies about how to fund government and how much to fund it.
Laura Kalambokidis joined MPR's Cathy Wurzer to put the proposals in context. Kalambokidis is an economist who studies state and federal tax policy at the University of Minnesota.
Cathy Wurzer: Where does Minnesota stack up when it comes to taxes? We've heard over the years, especially from Republican lawmakers, that Minnesota is a high tax state. Where exactly is Minnesota among the states, when it comes to tax burden?
Laura Kalambokidis: Well, if you look at tax revenue that includes state and local taxes and fees that are levied by the state, tax revenue as a percentage of income, we rank in the middle of states, around twenty-one, twenty-five, depending on which measure you look at.
Wurzer: Over the past decade, has that increased, decreased, held steady?
Kalambokidis: Well that measure that I talked about, for every dollar of Minnesota taxpayer personal income, fifteen and a half cents goes to state, county, township and school districts for services during the course of the year. And that number, fifteen and a half, if you go back ten years, that's gone for a low of about fifteen to a high of about 16.2 over the last ten years. So where we are, at fifteen and a half, it's fluctuated, but it's lower than it was ten years ago.
Wurzer: As you know, DFLer Mark Dayton is saying that wealthy Minnesotans are not paying their fair share of taxes. How do you determine whether a tax system is fair or not?
Kalambokidis: There are a number of different notions of fairness when it comes to taxes. One notion of fairness that's pretty common is that taxes should be collected in a way that imposes a greater burden on higher income people than on lower income people. And if you look at the tax system as a whole in Minnesota, so all state and local taxes, the overall tax system is pretty flat. It's not overall progressive. It's overall a little bit regressive, meaning that higher income people pay a slightly lower percentage of their incomes in taxes.
Wurzer: As you know, the Independence Party candidate Tom Horner thinks that the state needs more revenue to deal with this nearly $6 billion shortfall, but he's thinking of expanding the sales tax to raise revenue and actually lowering the rate and then broadening it to various other services, some personal services. What could be the advantages of doing that?
Kalambokidis: There are some good reasons to broaden the state sales tax. One of them is that we don't tax a lot of services, and over time, our economy has become more of a service economy. So more of the consumer dollar is going toward purchasing services rather than tangible goods, and we exempt a lot of those things. So that has resulted over time in an erosion of our sales tax base.
Wurzer: A lot of people, though, are upset about putting a sales tax on clothing. What would that do, especially for low-income individuals?
Kalambokidis: We think that some of the exemptions that we have under the Minnesota sales tax, like food and clothing, are there in order to reduce the burden on low-income individuals, and there's something to that. However, high-income families spend money on clothing as well. And so exempting those things doesn't have as much of an impact on reducing the regressivity of the sales tax as you might like to think.
Wurzer: As we're talking about taxes here, the Republican candidate Tom Emmer says he wants to hold the line on taxes, kind of follow in the footsteps of current Governor Tim Pawlenty in that. Mr. Emmer has really talked about how our tax structure is, he feels, driving businesses out of the state. How does a state tax structure affect the business climate?
Kalambokidis: Business taxes matter, and they matter in the sense that they're a cost imposed on the business. And so if you lower their costs, they might react by investing more, by hiring more people. However, business taxes tend not to be the most important thing for most businesses. Businesses are also considering infrastructure and the quality of the workforce in place. So there also are limits to what the state can do, in terms of stimulating the economy by lowering business taxes because unlike the federal government, the state has to balance its budget over the biennium.
And so you might be able to achieve some kind of a positive economic effect by reducing business taxes, but you're going to lead to a negative economic effect when you have to raise taxes on somebody else or reduce spending.
Interview edited and transcribed by MPR reporter Madeleine Baran
- Morning Edition, 10/25/2010, 7:25 a.m.