opinion

You might call them tax loopholes (liberals do) or tax relief (the conservative version). We'll employ the neutral label the state's nonpartisan tax analysts prefer: "tax expenditures."

They're the credits, exemptions, deductions and deviations from usual tax rates that are getting heavy scrutiny this year from would-be reformers of the state's tax code.

Of course, one taxpayer's "reform" is another's tax increase. That's why Revenue Department research director Paul Wilson's description of a just-released Tax Expenditure Budget for 2012-15 had members of the Senate Taxes Committee paying close attention Thursday.

Their interest is well-placed. Eliminating tax expenditures would allow lawmakers to reduce overall tax rates without reducing total revenue.

That trade-off ought to figure prominently in efforts to make Minnesota's taxes fairer to state taxpayers, simpler to pay and administer, more competitive with other states, and better able to keep up with the rising cost of government services.

Tax expenditures have become big diversions of the state's revenue stream. The new budget identified a whopping 307 such provisions in the tax code that together deprive the state of an estimated $12 billion in revenue each year.

Wilson described their "take" from the three largest sources of state revenue:

• Individual income tax collections would be 57 percent larger if all expenditures were eliminated. That tally includes many changes that would pose significant administrative problems for both taxpayers and the state, and hence are not advisable. But repealing the expenditures that are not disruptive in that way could net state government an additional $1.3 billion per year -- more than the higher top-bracket income tax rate that Gov. Mark Dayton favors.

• Corporate income tax collections would nearly double if the expenditures were repealed, Wilson said -- and far fewer of those changes would produce administrative problems. Repealing just those would raise $700 million per year, enough to cover the cost of reducing the top corporate tax rate from 9.8 percent to a more competitive 5.5 percent.

• Sales taxes offer the richest opportunity. State revenues would rise $6.5 billion per year if all purchases by consumers, businesses, nonprofits and local governments were taxed. If only consumer tax expenditures were eliminated, state revenues would climb $3 billion per year -- enough to buy down the overall sales tax rate from its current 6.875 percent to 4.5 percent.

That wouldn't be easily done. Consumer sales tax expenditures include the exemptions for food, clothing, prescription drugs and other items generations of Minnesotans have been loath to tax. Political resistance to applying the sales tax to exempt items would run high.

Or would it? As Wilson noted, tax expenditures are spared the biennial review that legislators give other state spending. Once in law, tax breaks tend to remain there, whether or not they are serving their intended purpose -- and whether or not they still pack the political punch that propelled them into law in the first place.

That's reason enough for lawmakers to give the latest Tax Expenditure Budget a hard look. It describes the high price Minnesotans are paying for a tax code that's riddled with exceptions and preferences.

And it paints an attractive picture of the lower tax rates all Minnesotans would pay if unjustified tax expenditures were weeded out.

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