Many years ago, my parents gave me some sage advice about how to deal with my first credit card. They said: "Don't go piling up debt on that card without knowing how you're going to pay for it." That's the kind of Minnesota common sense we all were probably raised on. We now know who's going to pick up the tab for more than $2.3 billion in new state spending.
On June 24, the Minnesota Department of Revenue released its Tax Incidence Analysis of the Omnibus Tax bill. While "tax the rich" and "tax the smokers" might sound catchy, the reality is that we will all be paying more.
Based on the Mark Dayton/DFL Party tax policy that took effect on July 1, those at every level of income will feel the impact of the 2013 legislative spending spree. While the "rich" taxpayers in the top 10 percent of the income distribution will see a projected tax increase of 0.67 percentage points, according to the Revenue Department, the poorest 10 percent will actually see a projected tax increase of more than 1.56 percentage points — nearly two and a half times the impact on the "rich."
But the middle 80 percent will not be let off the hook at all. If you don't fall into the top or bottom 10 percent of taxpayers, you will still see an increase to your effective taxes, according to the study. The bill from Gov. Dayton and the DFL did more than just tax the rich and nail the smokers. How could this be?
First, increases in business taxes will be passed to the consumer. The extension of sales taxes to warehousing services will be felt by consumers, assuming that those operations remain in Minnesota. The overnight increase in product costs of 7.85 percent will either hit you directly in the wallet or force businesses like Menards or Supervalu to move their centers, taking Minnesota jobs with it and reducing income tax revenue.
When you turn on your TV, you now will be paying sales taxes on satellite TV services. When your kid downloads that new Katy Perry album or when you want to download a book, you also get hit with sales taxes. And if you need to rent a car when yours is under repair, you will be slapped with a 50 percent increase in that tax. It all adds up — it all hits everyone.
And these projections of tax increases actually could be too low, being based on the assumption that local units of government will actually reduce their tax levies. To make the projections come true, cities and counties will have to cut their levies by 50 cents for every dollar they receive in local government aid and save through the new exemption from Minnesota sales taxes. Before the 2014 legislative session begins, we will know if this happens.
Election campaigning for 2014 has already begun. Dayton and his DFL colleagues will continue to try to tell you that "tax the rich and nail the smokers" won't hurt the average taxpayer. But in truth, their tax bill is built on gimmicks and glued together by the hope that you don't find out that everybody pays more.
David Osmek, a Republican from Mound, is a member of the Minnesota Senate.