Editorial: Poor shouldn't pay for business breaks

Plenty of Minnesota businesses could use a property tax cut this year. But do they want one so badly that they are willing to take an average of $213 per year from low-income renters to get it?

That's the reverse Robin Hood funding mechanism that House Republicans have chosen for their version of the year's omnibus tax bill, sent to conference committee Wednesday night on a straight party-line vote.

The Senate's version, sent to the Senate floor by the Taxes Committee on Thursday, offers businesses a different reason to feel guilty. Its business tax breaks would be funded in the next year by drawing down the state's reserve fund, less than a month after that fund finally climbed back to its legally required level after four years of underfunding.

The Senate bill also authorizes DFL Gov. Mark Dayton to impose unilateral budget cuts to replace the reserve drawdown -- in effect, to "unallot." Previous Legislatures have resisted that kind of constitutionally questionable gubernatorial budget-cutting, not invited it.

Both bills are laden with business tax breaks, many of which have merit. For example, it's past time to end the burdensome requirement that businesses apply for a refund to get back sales taxes paid on tax-exempt capital equipment. And it makes sense to increase two proven tax credits, one for research and development investments and another for "angel" investments in new businesses.

Reducing the "state general levy" that applies to both businesses and seasonal/recreational homes is also defensible, on both competitiveness and fairness grounds. Business property taxes are high in Minnesota, and they are passed along to customers in higher prices and to workers in lower wages, both of which hit low- and middle-income people disproportionately hard.

But the state's coffers are not full enough to cover the rich election-year gift GOP legislators want to send to businesses. Both packages leave a hole in the state's still-feeble 2014-15 budget (see box, above right). That's so despite the objectionable means both bills employ to soften their damage to the state's bottom line.

Under the bill, that income limit would go to $40,000 for seniors and disabled people and $25,000 for other renters. The share of rent attributed to property taxes would also shrink from 17 percent to 15 percent.

The upshot: 66,000 renters would lose the credit entirely, while 312,000 more -- 87,000 of them seniors or the disabled -- would see annual refunds cut by several hundred dollars per year. Nonsenior, nondisabled Minnesotans with incomes between $30,000 and $40,000 per year -- think recent graduates and working poor families -- would lose an average of $411 per year.

GOP defenders say those who would lose the credit would benefit from the better economy the business tax breaks spur. But the breaks are too widely disseminated and unconditional to make that claim plausible.

House Republicans also argue that property taxes account for only 14 percent of average rents, not 17 percent. But state revenue officials say the GOP calculus predates sizable property tax increases this year, the result of the elimination of the market value homestead credit.

Both the bills would need substantial revision to pass muster with the governor. While Dayton has not uttered "veto" in connection with the bills, "neither has an acceptable funding mechanism," Revenue Commissioner Myron Frans said Wednesday.

In differing degrees, both Dayton and the House bill propose revenue-increasing changes in the taxation of corporations with foreign operations. The Senate bill includes modest increases in tobacco product taxes. Tax bill negotiators should look to those features for better fiscal support for the modest business tax relief that should become law this year.

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