Gov. Mark Dayton has been bad-mouthing a proposed sales tax on clothing ever since he dropped his larger scheme for sales tax reform in March. Even at the lower 6 percent tax rate that the idea's proponents in the state Senate say it would allow, it's too hard on the middle class, Dayton says.
But one of the long-standing claims about a clothing sales tax has been that it would make the overall sales tax less regressive -- that is, less disproportionately burdensome for lower-income Minnesotans.
That's still accurate, said Revenue Department tax research director Paul Wilson. The latest analyses draw from 2008 data, and use those data to derive a score called the Suits Index. The more negative the Suits number, the more regressive the tax. The score for a clothing tax was -0.215, compared with -2.45 for the sales tax as a whole.
Refund part of the clothing tax via an income tax credit, as the Senate bill does, and the tax would become even less regressive, Wilson said.
It turns out that the wealthy spend more of their incomes on clothing than poorer folks do. That's one of the reasons that adding the sales tax to clothing has been a recurring option in state tax discussions for at least 30 years.
A clothing tax would also stabilize the state's notoriously volatile revenue stream. (People still buy clothes during recessions.) It would not cause undue concerns about interstate competitiveness. (Minnesota is one of four states with a sales tax that exempts clothing.)
It may not be popular with the governor. But its policy merits make it well worth a serious discussion by House and Senate tax conferees this week.
If the U.S. minimum wage, now $7.25 per hour, had kept pace with its purchasing power high point in 1968, it would be $10.46 today.If it had kept up with worker productivity gains since 1968, it would be $21.72.
So says a well-researched white paper prepared by state Rep. Ryan Winkler and staffers for his Select Committee on Living Wage Jobs, and distributed Friday in advance of the Minnesota House's consideration of his bill to increase Minnesota's wage minimum to $9.50 per hour by August 2015.
Big state and federal tax cuts for the rich a dozen years ago are sometimes cited as the reason for growing income inequality in America. DFLer Winkler argues that a bigger cause is the political failure to regularly boost low-level wages, something that the U.S. market has demonstrated it does not do dependably on its own. "Wage stagnation is the single most important contributor to growing economic inequality in Minnesota and the nation," the paper says.
Minnesota has not increased its minimum wage since 2005; the federal floor was last raised in 2007. Meanwhile, the U.S. poverty rate grew from 11.3 percent in 2000 to 15 percent in 2011, and the share of U.S. incomes claimed by the top 1 percent has surged since the end of the Great Recession.
History teaches that a widening income gap invites social and political upheaval. Government is well advised to take reasonable steps to narrow that gap -- and it's hard to argue that a wage of $9.50 per hour is unreasonable.
Part of my State Fair routine each year is a stop at the Minnesota House of Representatives booth to examine the questions on the annual issues survey it offers fairgoers. Part of my post-fair routine is to take note of that survey’s results. They aren’t scientifically reliable, but legislators pay attention to them, right?
Maybe not. On Wednesday, the House voted 106-21 against allowing Sunday liquor sales in Minnesota, despite being advised by 63 percent of 2012 State Fair survey respondents that they like the idea.
The House's vote came on an amendment offered by Rochester Rep. Tina Liebling.
Afterward, Sen. Roger Reinert, the Senate sponsor of a bill to allow Sunday sales, faulted his House counterpart for offering Sunday liquor sales as an amendment to a larger bill.
"This is a major change and needs to work its way through the legislative process so the public can have all the opportunity necessary for input," he said.
Apparently hearing from some 9,000 people at the Great Minnesota Get-Together isn't input enough.
The phrase "fastest growing homeless population in Minnesota" likely conjures a stereotypical image of unkempt middle-aged men battling the demons of addiction and/or mental illness. In reality, it described teen-agers and 20-year-olds in the 2010 Wilder Research tally of Minnesota homelessness. Their numbers took a 46 percent jump between 2006 and 2009, and stand at an estimated 2,500 per night today.
While many factors contribute to youth homelessness, two stand out, said Jodi Harpstead, CEO of Lutheran Social Services. About three out of five homeless youth were the children of foster care who "aged out" when they turned 18. The next biggest group are LGBT kids whose sexual orientation cost them their welcome in their home of origin.
"They’re not runaways," said Harpstead, whose organization is a leader among 22 nonprofits working to win additional state dollars to help homeless youth. "If they have a home to go to, we send them home."
Rather, homeless youth are kids whose families broke down or let them down – and whose state has been letting them down too. A state agency study in 2007 said the housing and services to give homeless youth a bridge to self-sufficiency require $8 million per biennium from state taxpayers. That year’s Legislature responded with $1 million. The 2009 and 2011 Legislatures came through with a mere $238,000 for two years.
This year’s Legislature has done better. The Senate has $4 million to remedy youth homelessness in its omnibus human services bill. The House’s bid is $3 million, though the bill’s sponsor, Rep. Laurie Halverson of Eagan, says she’s still angling for more.
Harpstead said the coalition is grateful for the increase. But the head of the state’s largest non-profit social service agency has been at the Capitol repeatedly this year to say that anything short of $8 million for the Youth Homeless Act will leave hundreds of young people "couch surfing" or sleeping in cars, abandoned buildings, parks and public buildings. A state whose best economic asset is its human capital can’t afford to put that much of it at risk.
The Minnesota Senate’s base-broadening, rate-lowering tax reform is limping badly as it heads into conference committee to tangle with the more conventional DFL revenue-raising ideas of Gov. Mark Dayton and the state House.
The fact that it took two tries to pass the Senate’s $1.8 billion tax package Monday, and then by a tepid 35-31 vote, revealed weak support among suburban DFLers for reform ideas that have been faulted by Dayton as well as Republicans for pinching the middle class.
The beating the Senate bill took illustrates why economists’ advice to lower tax rates and broaden the range of tax-triggering activities has been so hard for politicians to follow. Reform inevitably creates winners and losers. It’s easy for political opponents to draw attention to the losers and blind voters to the winners.
On Monday, Republicans roundly condemned the addition of clothing, non-prescription drugs and personal grooming services to the sales tax base. Little mention was made of the fact that the bill would also reduce the state sales tax rate from 6.85 percent to 6 percent, and would offer low- and middle-income families a credit each year to balance the clothing tax increase.
Suburban DFLers also recoiled from the bill’s boost in income taxes for the top 7 percent of the state’s earners. Many of the people in that taxpaying cohort live in suburban districts.
Both the income and the sales tax features of the Senate bill will be hard sells in conference committee. Dayton reiterated Tuesday his desire to confine income tax increases to the top 2 percent and to leave the state’s sales tax untouched, as the House tax bill does.
Senate tax negotiators still have a chance to argue that broadening the sales tax base and expanding the income tax increase to more filers is superior tax policy. Those moves would give Minnesota more competitive tax rates and a more dependable revenue stream from the growing service sector of the economy.
But Monday’s try-try-again vote will accompany Senate conferees into negotiations, and may speak louder than they can.
News about the Senate DFL majority's tax proposal, due to be unveiled Tuesday, was scarce Monday at a Humphrey School conversation among former House Republican Speaker Steve Sviggum and this session's leaders of the DFL majorities, Sen. Tom Bakk and Speaker Paul Thissen.
Instead, Bakk offered something else -- a more fulsome explanation than heard to date for the Senate majority's decision to pursue sales tax reform, despite DFL Gov. Mark Dayton's decision to drop his own sales tax proposal in the face of stiff business opposition last month.
Reformers have argued for years that taxing the purchases of clothing and consumer-purchased services would allow for a lower overall sales tax rate, which would stimulate sales. It would also help stabilize state revenues, drawing them from a broader, less volatile share of the state's economy.
To those well-worn arguments, Bakk added one more. Raising the sales tax shifts a portion of the state's tax burden to out-of state payers, particularly businesses based in other states.
"Generally speaking, the income tax falls 100 percent on the residents of Minnesota. The sales tax, on the other hand, a huge proportion of that is exported away from our citizens," Bakk said. He noted that 46 percent of today's sales taxes are paid by businesses, and not just local ones. "It ends up getting paid by Wells Fargo in San Francisco, by WalMart in Bentonville, Arkansas, by John Menard in (Eau Claire) Wisconsin. It doesn't all fall on Minnesotans."
That may be true of the existing sales tax base. It's questionable how many businesses buy the digital books, pedicures, pairs of socks and other consumer items that Senate DFLers would add to the sales tax base. Nevertheless, that's the argument Bakk said he'll bring to the end-of-session negotiating table with Dayton and House DFLers, who've evinced very little interest in sales tax reform this year.
"Broader and lower is good," Sviggum interjected. Bakk concurred. The Senate's plan would take the state sales tax rate from 6.875 percent to 6 percent.