As Minnesotans, we are, I believe, in agreement that a strong business climate is key to improving the lives of us all. That simple goal drives the Minnesota Chamber of Commerce to perennially lead the charge to protect and expand the state’s economy.
Our accomplishments at the 2017 Legislature represented a banner year for the statewide business community. The tax bill was noteworthy for all Minnesotans. Lawmakers, in concert with Gov. Mark Dayton, delivered record tax relief for families, farmers and businesses. With back-to-back budget surpluses and no tax bill since 2014, this relief is important and overdue.
But the governor now is making the case that these investments in our economy will cause long-term financial challenges for our state budget. He has said that the automatic inflation adjustment on the statewide business property tax should be renegotiated. We disagree.
This important reform puts Minnesota on a path to a more competitive tax structure. Minnesota’s business property taxes rank among highest in the nation — No. 2 for rural properties and No. 7 for metro properties — and exceed some of our neighboring states by as much as 200 percent. We are the only state that assesses a separate, statewide property tax solely on all business properties. It represents about 30 percent of their total property tax. It’s been on autopilot ever since being enacted in 2002, increasing every year by the rate of inflation without any vote by the Legislature.
Reducing this tax will not affect the taxes that businesses pay to local governments, or shift any taxes to homeowners, because they don’t pay the tax.
Tax relief vs. spending was a major policy debate in deciding how to use the state’s $1.65 billion surplus. Even though the session is over, it is important for all of us to understand the consequences for our state of both new spending and tax relief.
Yes, reduced taxes affect the state treasury. So does more spending. Spending has budget “tails,” too. The built-in growth of government spending — and not the fact we’re keeping more dollars in taxpayers’ pockets — will put much more pressure on future budgets. With no legislative action, the general fund was projected to increase by 7 percent. Of the $1.65 billion surplus, lawmakers directed more than $1.1 billion to new spending and $451 million for tax relief. With the new budget, total government spending will grow by more than 9 percent from $41.8 billion in fiscal year 2016-17 to $45.7 billion for the two-year cycle beginning July 1.
The sky will not fall by repealing the automatic inflator. The cost of removing the “autopilot” on the state property tax levy is about $45 million in fiscal year 2018-19. For fiscal year 2020-21, it represents $114 million, or two-tenths of 1 percent of the $48 billion budget. This important tax reform reduces a high, fixed cost of doing business in Minnesota but represents a fairly small loss in state revenues.
Business property tax relief benefits all businesses. We tire of the argument that business tax relief only benefits large out-of-state corporations. All companies pay the statewide business property tax. Many small businesses are tenants in larger properties and pay these taxes through their leases. Businesses cannot simply absorb higher costs year after year. This is a regressive tax ultimately paid by consumers, employees and investors.
Crafting a budget is finding the right balance between spending and tax relief. There’s value in both. The tension between the two is the secret sauce of reaching compromise. The debate often is messy — even ugly — and can push the Legislature into overtime. But let’s not lose focus on the final product — a tax bill that provided broad-based tax relief. More than 70 percent of the tax relief went directly to individuals, including exempting more Social Security income from taxation, increasing dependent care credit and helping with college costs.
The Minnesota Chamber’s efforts focused on those areas where Minnesota is most uncompetitive — taxes that undermine the ability of companies to invest in their operations and grow jobs. We made significant progress this year to the benefit of all Minnesotans.
Doug Loon is president of the Minnesota Chamber of Commerce.