Minnesota Matters: Clothing tax won't worsen regressivity

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  • May 6, 2013 - 1:18 PM

Gov. Mark Dayton has been bad-mouthing a proposed sales tax on clothing ever since he dropped his larger scheme for sales tax reform in March. Even at the lower 6 percent tax rate that the idea's proponents in the state Senate say it would allow, it's too hard on the middle class, Dayton says. 

But one of the long-standing claims about a clothing sales tax has been that it would make the overall sales tax less regressive -- that is, less disproportionately burdensome for lower-income Minnesotans.  

That's still accurate, said Revenue Department tax research director Paul Wilson. The latest analyses draw from 2008 data, and use those data to derive a score called the Suits Index. The more negative the Suits number, the more regressive the tax. The score for a clothing tax was -0.215, compared with -2.45 for the sales tax as a whole.

Refund part of the clothing tax via an income tax credit, as the Senate bill does, and the tax would become even less regressive, Wilson said.

It turns out that the wealthy spend more of their incomes on clothing than poorer folks do. That's one of the reasons that adding the sales tax to clothing has been a recurring option in state tax discussions for at least 30 years.

A clothing tax would also stabilize the state's notoriously volatile revenue stream. (People still buy clothes during recessions.) It would not cause undue concerns about interstate competitiveness. (Minnesota is one of four states with a sales tax that exempts clothing.) 

It may not be popular with the governor. But its policy merits make it well worth a serious discussion by House and Senate tax conferees this week.

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