The governor's budget plan won't send businesses scurrying

  • Article by: ROGER L. HALE
  • Updated: June 7, 2011 - 8:40 PM

Gov. Mark Dayton

Photo: Jim Gehrz, Star Tribune

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As someone who has spent more than a generation working in business in Minnesota and around the country, I've heard many arguments about what role state government plays in building a strong economy.

What I've seen at the State Capitol over the last six months has been no exception -- and for good reason.

The stakes have never been higher for Minnesota's future, and the outcome of the budget negotiations between the governor and the Republican majorities in the Legislature will determine what kind of business climate we have for decades to come.

During my 50 years in the business community, I've heard many issues about our economic competitiveness raised, and have often agreed with actions taken to improve the business climate.

Time and time again, I would hear high-paid executives, trust fund recipients and wealthy heirs complain about high personal income taxes.

But I cannot remember any instance of an executive making a major business decision based on his/her individual state income tax rate. It's simply not a factor in what makes a business create a job or succeed.

The reality is that the governor's plan is a balance of targeted cuts and new revenue that Minnesota businesses need.

I know about business development and job creation, and there are many decisive factors, vastly more important than individual income taxes, that influence business investment and location decisions.

Such factors include: a large and well-trained workforce, a pool of world-class scientists and technical experts, a rich and lively cultural scene, high-energy lifestyle amenities, and a robust and ever-growing infrastructure, ranging from high-tech capability to basic transportation such as highways and a major hub airport.

In previous years, Minnesota has been strong relative to other states in these truly important areas. The current proposals by the Legislature, in my opinion, are the real "job-killers," based on facts and experience in Minnesota.

An important element of Gov. Mark Dayton's compromise plan to solve Minnesota's very serious budget deficit is to add a fourth tier of state income taxes, taxable on income over $250,000 to those citizens lucky enough to be in the top 2 percent of income in the state.

The argument against this, often voiced by probusiness groups and especially by the current GOP majorities, is that such an increase would be "a job killer ... driving away the very entrepreneurs who are the engines of economic growth in the state."

While there are many heated opinions of this belief, there is very little evidence that it is true, or ever has been.

More important: During the 1990s, Minnesota ranked among the top 10 states in state and local taxes, fees, and other revenue as a percent of personal income. During this same period of relatively high taxation, Minnesota was outperforming the rest of the nation in job and income growth.

Since 2002, taxes and other revenue in Minnesota have fallen dramatically relative to the rest of the nation, to the point where Minnesota ranks 31st among states. Minnesota job and income growth also fell below the national average during that time.

There certainly are arguments for "business-friendly" legislation, such as balanced policy in areas like unemployment compensation, workers' compensation, regulatory approvals and licensing, bureaucratic processing, environmental reviews, litigation limits, as well as corporate and property taxes, just to name just a few.

But higher tax rates that affect individuals, not businesses, are not among them.

So, the question we must ask of the adamant opponents to the Dayton compromise budget plan is: What is the evidence that raising the top level of individual state income taxes is not a better way to promote economic health and jobs growth in Minnesota than deep cuts to postsecondary education, primary education and infrastructure?

Roger L. Hale is a former: CEO of Tennant Co, director of five NYSE companies, chairman of the Minnesota Business Partnership and the Governor's Workforce Development Council, and successful start-up investor.

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