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Continued: St. Anthony: Business flexed its muscle in election

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Last update: November 18, 2012 - 6:58 PM

Call it the law of unintended consequences, times two.

The Minnesota Republicans who pushed the proposed constitutional amendment to ban gay marriage were the same folks who opposed much-needed tax reforms in the Legislature and the adoption of preschool programs designed to get more kids ready for kindergarten at no additional taxpayer expense.

Minnesota businesspeople know that most moms must work and need quality day care and preschool. Minnesota businesses also hire and promote women and gays, and some provide benefits to same-sex couples.

So some of Minnesota's biggest businesses put their muscle behind defeating the marriage amendment. The hard-right initiatives backfired at the ballot box and the voters put Democrats back in control of both the House and Senate.

Did the business lobby get more than it bargained for? Maybe. But the election sent a clear message that resonates with many business folks.

"Frankly, I want to see them all start working together on behalf of Minnesota -- regardless of party affiliations or special interests," said Pat Donovan, CEO of St. Paul-based Bremer Bank. "The state is currently operating a business model that just isn't working. Minnesotans ... value our quality of life. That quality of life costs money. From a business perspective, I think our political leaders need to focus on creating quality job opportunities, expanding the tax base and fostering sustainable development."

Not all Democrats are deserving of the "anti-jobs" and "anti-business" label. Already the incoming DFL legislative leaders have warned public employee and teacher unions and municipalities that more cuts will be needed to plug a projected $1 billion-plus deficit in fiscal 2013-14.

Myron Frans, Gov. Mark Dayton's revenue commissioner, has spent much of the last year compiling tax-reform proposals designed to inspire job creation, fairness, simplicity and fewer loopholes for a tax code that reflects the 21st-century economy.

Frans, a tax lawyer with a small-business background, is drawing his recommendations from dozens of meetings he's had with thousands of businesspeople, consumers and politicians. He will incorporate a number of the proposals advanced by Republican Gov. Tim Pawlenty's tax-reform commission of 2008. Pawlenty, who was immersed in presidential politics, ignored most of them.

What's more, Charlie Weaver, CEO of the Minnesota Business Partnership, says there's a lot to like in the plan Frans will share with Dayton as the governor builds his two-year budget and government-overhaul plan early next year. The Business Partnership, Weaver said, supports what makes Minnesota more competitive.

"We are willing to go down the path of tax reform with the governor,'' Weaver said. "Minnesotans will invest more revenue as long as it goes toward education reform, higher education [and] 'smart investments' in early-childhood education that result in a better state, not just the black hole of the general-fund budget."

Count on most lobbies to fight for their individual deductions and credits. At the end of the day, many of us belong to "special interest" groups that cling to mortgage interest deductions, accelerated depreciation or credits for equipment purchases and sales tax waivers.

How big are tax preferences that lower the overall take? In 2010, tax breaks saved Minnesota's corporate and individual taxpayers $11 billion, lowering the state's potential revenue from $27 billion to $16 billion, according to Minnesota Revenue. We hate taxes. And we love our individual tax breaks.

Frans says his goal is to build a less cluttered, more balanced three-legged stool of tax sources. In 2010, property taxes -- the most regressive tax -- brought in 40 percent of government revenue collected in the state. Income taxes provided 33 percent and sales taxes 27 percent. Income taxes and our narrow sales tax are more sensitive to economic swings.

Frans likely will propose that the Legislature lower Minnesota's relatively high sales tax rate while applying the tax to clothing and possibly personal services. Right now, states such as South Dakota and Iowa pay a lower percentage, but tax more stuff.

Frans likely will propose lowering the state's top corporate tax rate from 9.8 percent. It's a favorite target of neighboring states and an irritant to Minnesota CEOs. But the effective rate paid, after deductions and credits, is under 5 percent. Moreover, most Minnesota business owners pay taxes on profit at their personal rate, not the corporate tax rate.

Dayton wants to raise the highest personal income tax rate. The highest rate is now 7.8 percent, down from 8.4 percent in the 1990s. Dayton has proposed raising it to as high as 10 percent when taxable income rises about $150,000, which would impact the top 2 percent of state earners.

That's where most of the fireworks will be. But there's plenty of room for sensible compromise.

"It's time to address the high corporate tax rate and lower and broaden the sales tax," said Mark Sellner, a GOP-leaning tax attorney and University of St. Thomas instructor who's paying close attention to Frans.

"The governor's higher income tax rate will be controversial, but sales and income tax is where you get the money. You may get some [high-income] people who say they'll leave Minnesota. But if you work and enjoy the benefits of living here, most people will pay their taxes."

Neal St. Anthony • 612-673-7144 nstanthony@startribune.com

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