Taxes do matter to businesses

  • Article by: DOUG BAKER
  • Updated: June 10, 2011 - 10:01 PM

The hit to personal income is a barrier to attracting and keeping talent.

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Gov. Mark Dayton (left) and House Speaker Kurt Zellers (right)

Photo: McKenna Ewen, Star Tribune

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Recently a retired business leader offered his opinion on these pages that increasing personal income taxes has no impact on business decisions or economic growth ("The governor's budget plan won't send businesses scurrying," June 9).

 I have two reactions to that point of view: First, many in the business community strongly disagree -- and second, focusing on revenue generation misses the point and delays action on the more important issue -- unsustainable increases in government spending.

It's no secret that Minnesota always has been a high-tax state. An April 2010 report from the Itasca Project, which highlighted our region's strengths and weaknesses, identified Minnesota's uncompetitive tax structure as one of the main barriers to job creation.

My experience, which is shared by the majority of my fellow business leaders in Minnesota, is that personal taxes do matter. It's an issue that frequently comes up when recruiting people or transferring people to Minnesota.

Quite simply, our high personal income taxes are already a barrier to attracting and sometimes to keeping top talent. Following Gov. Mark Dayton and enacting the second-highest tax rate in the nation would hurt our state.

This is especially true today when state and national borders no longer constrain the movement of labor, capital and intellectual property. In this digital age, people can and do work from anywhere -- and they can and will choose to work where they can keep more of their income.

Our high personal income tax rates also are a barrier to keeping retired business people in our state -- as evidenced by the number who have chosen to move their residences to Florida to flee from Minnesota's already high tax rates.

There also have been recent headquarters moves that cost Minnesota thousands of jobs -- MoneyGram comes to mind -- which I strongly believe was motivated more by personal income tax rates than anything else (in my opinion).

But you don't have to take my word for it. According to the U.S. Bureau of Labor statistics, Minnesota employment growth has lagged the U.S. rate for a decade. More than 1,200 small and medium-sized businesses left the state from 1997 to 2008.

Given our economic challenges, we should put raising personal income taxes way down the list of intelligent ways to deal with revenue shortfalls.

More important than the tax issue, though, is Dayton's proposed double-digit increase in state spending. The legislative majorities have offered a 6 percent increase in spending over last year's budget -- this includes a substantial increase in spending on both K-12 education and health care.

For any family or anyone who owns a business in this state, a 6 percent increase in revenue would be considered very good news and would be considered a budget they could live with. However, in government-speak, a 6 percent increase is considered a "cut" because it represents less than the government wanted to spend.

Raising taxes and double-digit increases in government spending may have been a manageable strategy in the 1980s and 1990s, when our competition for jobs came primarily from Wisconsin and Iowa.

But the reality our state faces today is a very different one.

Our global competitors and the majority of U.S. states -- led by a number of prominent Democrat governors -- are moving toward lowering taxes, prioritizing government spending and building a more supportive business environment in order to attract jobs.

Minnesota must do the same if we hope to grow jobs in the future and compete in the 21st century.

Doug Baker is the chairman, president and CEO of Ecolab; immediate past chair of the Minnesota Business Partnership, and current chair of the Minnesota Business Partnership's Fiscal Policy Committee.

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