ed032708

On the homepage

Thanksgiving

Thanksgiving: More Americans to hit road

Out There

Vikings

Favre's stats put him in MVP picture

Pardon Board

Not all forgiven

Home | Opinion Exchange | Editorials

Editorial: Senate has more realistic tax bill

But House bill points in the right direction: tax reform.

Last update: March 26, 2008 - 6:50 PM

Print this story

Follow Opinion Exchange on Twitter

CALL FOR REFORM

"We are too heavily dependent on corporate income taxes. Corporate income taxes are too volatile with the economy. ... We badly need a tax reform proposal that puts stability back into the revenue stream."

Senate Tax Committe chair Tom Bakk, March 26.

More from Editorials

If the audience had been tax economists when Rep. Ann Lenczewski unveiled her business tax reform bill last week, the House Tax Committee hearing room likely would have erupted in cheers.

Lenczewski's bill does what experts consistently urge. It eliminates a raft of special tax breaks in favor of a reduction in the corporate-tax rate paid by all -- taking the rate down a full percentage point, from 9.8 to 8.8 percent.

But the tepid response to the Bloomington DFLer's proposal was a reminder that successful lawmaking means appealing to Republicans and DFLers, not academicians. Each of the tax breaks Lenczewski's bill would eliminate has powerful defenders, and is in the tax code for defensible reasons. Among them: a foreign royalties subtraction and a research and development tax credit that are valued by the high-technology ventures Minnesota wants to attract and keep.

What's more, the net state tax increase the bill would generate -- $100 million more in fiscal 2009 than Gov. Tim Pawlenty proposes -- is almost certainly veto bait. That tax increase is too large to win the bipartisan support that any serious legislation requires this year.

A more politically realistic tax proposal was unveiled Wednesday by Senate tax chair Tom Bakk. It hews closer to Pawlenty's position, in both design and size. But it also contains some important differences -- ones the Republican governor would do well to approach with an open mind.

For example, Pawlenty proposes to lighten the tax burden on average taxpayers with a 0.125 percentage point cut in the sales tax rate. It's a reduction so tiny that it's likely to be invisible to many consumers. For a similar amount of money, the Senate DFL proposal would increase aid to cities, counties and townships -- much of which would translate into relief for property taxes payable in 2009. That's more likely to provide noticeable help for families hard-pressed by the galloping property tax increases of this decade. It has the added benefit of postponing until the coming biennium the burden on the state's budget.

One way to improve on the Senate's idea, and make sure it delivers the tax relief Bakk said he intends, would be to send help directly to taxpayers whose bills are disproportionately high, relative to their incomes -- that is, to enlarge the state's property tax refund program.

Pawlenty's business allies will object to the Senate's acceleration in the growth of the statewide business property tax, beginning in fiscal 2010. The governor should hear out Bakk's argument for a change. The Senate bill corrects a flaw in the tax's 2001 design. Businesses are the only classification of property whose effective tax rate automatically declines over time. That special treatment is hard to justify.

Bakk said Wednesday that he admires the structure of Lenczewski's proposal. He shares her view that the state's tax structure would be fairer and more competitive with other states if the corporate income tax rate came down.

But Bakk bowed to a truism in state lawmaking: Major change doesn't happen without a governor's leadership. He said he has urged Pawlenty to undertake a revenue-neutral overhaul of the tax code that would reduce the corporate burden, more fairly distribute the personal tax load, and bring greater stability to state revenues. Bakk is right: Tax reform of that kind would be a fine gubernatorial legacy.

Recent Editorials stories

Editorial: This Bud Light's not for U - March 26, 2008

Editorial: This Bud Light's not for U - Anheuser-Busch's ill-advised 'Fan Cans'' promotion. More

Comment on this story | Be the first to comment | Hide reader comments

New ideas for the public sector

THERE'S NEVER BEEN A BETTER TIME to create a more efficient Minnesota. Facing large budget deficits at the state, county and local levels, Minnesotans are seeing with new clarity that the public sector must adapt to new economic realities. Only the smartest, most strategic reinvention will ensure that our tax dollars are spent on the best programs and services. Read more

About Opinion Exchange

Opinion Exchange is produced by the Editorial Department, which is dedicated to hosting the discussion on a range of issues of interest to Star Tribune readers online and in print. In its new format, it's our hope that Opinion Exhange will create a more dynamic dialogue between Star Tribune readers and the Editorial Board. Many individual posts will be written and signed by members of the Editorial Board and will reflect their own opinions. Daily editorials will continue to represent the institutional voice of the newspaper and be researched and written by the Editorial Department, which is independent of the newsroom.

Subscribe to RSS|Learn more about RSS