Gov. Mark Dayton and the DFL-controlled Legislature last week produced a five-page document that declares the just-concluded session made Minnesota “a more competitive place to do business.”
You could have fooled Red Wing Shoes President Dave Murphy, who runs a growing, 2,100-employee manufacturer that exports Minnesota-made footwear around the globe. That’s no easy task in an industry that has all but left the United States for Asia over the past 30 years.
Murphy, a moderate Republican with deep Minnesota roots, privately told Dayton early in the session that he thought a decade of Republican leadership had skimped on education funding.
“I agree we needed to find more revenue,” Murphy said in an interview last week. “But I don’t believe solving a $650 million deficit with $2 billion in additional taxes is a ‘balanced approach.’ I’m willing to spend more, but I think they should have looked harder at cuts and innovation.’’
Murphy and other high-income folks are going to pay a higher marginal income tax rate above $250,000 in taxable household income. That won’t drive him to low-tax Florida, he said.
But the controversial, 11th-hour sales tax on warehouses and storage facilities is another matter. The tax on warehouse firms and a few other industries apparently passed while their lobbyists on guard at the Capitol that day were looking the other way. The warehouse sales tax is not scheduled to take effect for a year.
Regardless, the tax has set off alarms at Red Wing Shoes. The board recently approved a $3 million investment in equipment that’s going to add jobs to the unionized workforce. But the decision to invest $20 million-plus in a new distribution center in Red Wing, about 50 miles southeast of Minneapolis-St. Paul, has been delayed. There also is a Red Wing plant in Missouri that is more centrally located.
Minnesota Revenue Commissioner Myron Frans, who is Dayton’s much-bloodied point man on taxes, was on the phone to Murphy Friday explaining that the tax would affect only storage facilities that distribute the goods of other companies and not on proprietary-goods warehouses such as that envisioned by Red Wing Shoes.
That’s small comfort for Murphy.
“I just can’t raise the prices. … Consumers will go to some other product,” Murphy said. “I don’t think [Dayton and the Legislature] have really dug into state health care or pensions or other tough issues. And please stop dividing business leaders and wealthy from everybody else by saying they don’t pay their fair share. Why not say we need more help from people who can afford it? I’m willing to help.”
Warehouse expansion on hold
Red Wing Shoes won’t move across the Mississippi River to Wisconsin, acknowledged Murphy. But its warehouse expansion is on hold for now.
The DFL boasts of numerous pro-jobs, pro-business initiatives, including several small business-related tax decreases, this session. And the Mayo Clinic, 3M Co. and the Mall of America each worked their own taxpayer-subsidized growth plans. Republicans even jumped on those popular gravy trains.
Regardless, the perception is that the DFL rolled business owners this session.
“There’s the old adage, ‘Don’t get mad, get even,’ and that’s what they seemed to have done,” said Bob MacDonald, the retired Allianz Life CEO who lives most of the year in Florida, but who chooses to remain a Minnesota resident and pay the higher taxes.
“It would have been better if [the DFL leadership] had said, ‘Let’s not get mad, let’s get better.’ ”
Several weeks ago, I wrote a column that pointed out that despite the “no new taxes” mantra of the Minnesota Chamber of Commerce and the Minnesota Business Partnership, the two largest business lobbies, business groups often contradict themselves.
The Minneapolis and St. Paul regional chambers, for example, were lobbying for everything from transit tax hikes to ballpark subsidies. And individual members of both big lobbies were advocating to protect their existing tax breaks, trying for new exceptions and some were requesting more funding for education.
Tough not to blame the DFL, boxed in for a decade by the Republican majority and Gov. Tim Pawlenty, the self-described Wal-Mart Republican who is getting rich lobbying for the Wall Street titans whose 2008 bailout he once bashed. But the DFL leaders and Dayton need to return to the drawing board and develop a more coherent approach that is broader-based and fairer.
What to do
They are going to get a break from the marvelous Minnesota economy, which is growing faster than the national economy. We still need tax reform that ought to include:
• Repeal of the warehouse sales tax.
• A broader-but-lower state sales tax on all consumer goods and services including clothing. Use the income tax system to protect the working poor from too heavy a burden.
• Higher alcohol taxes, which have not been raised for years. Quit picking just on smokers. The booze lobby is just more powerful. Alcohol, from drunken driving to lost productivity and health care expenses, doesn’t pay the full tab for the damage it does.
• Quit demonizing the wealthy. Some are even Democrats. They pay a lot of taxes. Dayton & Co. went too far in raising the highest marginal rate close to 10 percent.
• Quit behaving as if Education Minnesota and AFSCME are Minnesota’s most important stakeholders.