State senator steps up and shows the way

  • Article by: LORI STURDEVANT
  • Star Tribune
  • March 15, 2009 - 9:16 AM

DFL State Sen. Ann Rest got all mavericky last week. She put her best ideas for a better tax system into bill form, then introduced it.

That's what they all do, you say? Nope. That would be the civics book version of lawmaking. In real life at the Minnesota Legislature, a lot of legislators' ideas about big, politically hot topics stay shielded from public view, unless and until a caucus leader gives the nod for the notion to go public.

Discourse about the people's business is the poorer for such reticence -- and when that business is desperately short of money, as it is this year, it ought not suffer from poverty of ideas as well.

That thought, plus a 25-year veteran legislator's self-assurance and her innate impatience with timidity, propelled Rest's tax reform bill into the lawmaking hopper. Some Capitol basement-dwellers seized on it and speculated that it contained clues about the DFL direction on tax policy this year.

That claim is a stretch. Rest, who has earned four master's degrees, two of them from Harvard, is quite able and willing to act alone.

A better reason to give her bill a good look is that it weaves together changes that plenty of economists, wonks and study groups would admire. Taken together, these ideas would realign the Minnesota tax system for a new economy and a new era.

The bill would:

•Extend the sales tax on clothing, while rebating the tax for low-income Minnesotans and reducing the total sales tax rate by at least half a percentage point.

•Apply the sales tax to legal and accounting services, beginning in 2011.

•Eliminate the state corporate income tax in four years and give businesses an upfront sales tax exemption on capital purchases.

•Boost the state business property tax beginning in 2010.

•End the requirement that retailers pay their anticipated July sales tax receipts in June, thereby giving them a one-time shot of additional cash this year.

•Phase in a return of the state income tax rate to 1990s levels for filers earning more than $250,000 a year.

What's so good about all of that? Several things:

•It corrects an imbalance in which high-income Minnesotans pay a lower effective tax rate than middle earners do.

•It reflects an economy that has become more service-driven than goods-driven, a trend that will continue as the population ages.

•It better positions Minnesota to compete for business investment in a global economy. That's something Rest, an accountant by profession, counsels her DFL Party to take seriously.

"We can improve the business climate with better tax policy," she said. "We all should want to do that. It's not a Republican thing or a DFL thing. We all want people to make money here."

Rest's proposal is, in Capitol parlance, "revenue-neutral." As written, it does not bring more money into state coffers. As such, it was dismissed by some of her fellow DFLers as unhelpful to cracking the big nut this session. Some whispered that by not including a net tax increase, Rest was lending legitimacy to Gov. Tim Pawlenty's insistence that the $4.6 billion budget gap in 2010-11 can be closed without a tax increase.

Others -- including powerful Senate tax chair Tom Bakk -- are philosophically resistant to any sales tax expansion. That's because it's regressive, falling disproportionately hard on lower-income consumers. But Rest's tax credit idea blunts that effect.

The Rest plan is not about correcting an immediate problem. Rather, it's about creating a new long-term framework for state taxation, one that relies more on taxing consumption than either work and savings (income taxes) or wealth (property taxes.) More consumption may be desirable right now. But in the long run, a society that consumes less and saves more than Americans did in the last decade would enjoy a more sustainable economy.

The Rest framework can be tweaked fairly simply to solve this year's money problem. The sales tax rate reduction can be delayed. The phase-out of the corporate income tax can be slowed.

The trickier part will be selling either one tax-averse Republican governor or three tax-averse House Republicans (the number needed for a veto override) to go along -- not to mention skeptical DFLers. Rest has been around long enough to know that she's playing the maverick right now. Mavericks are useful sources of ideas and voices of conscience. But, almost by definition, they usually have a hard time rallying a majority to their sides.

Lori Sturdevant, an editorial writer and columnist, is at

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