Setting the record straight on business taxes again

Minnesota Revenue Commissioner Myron Frans made the rounds at the State Capitol today, appearing before both the Senate and House Tax Committees.  Frans got a decidedly chilly reception from Republicans on the respective committees, including our own State Senator Julianne Ortman (who went to so far as to call elements of the plan “a re-election ploy” — a rich assertion coming from a party that hasn’t hesitated to try their own ploys).

Meanwhile, other Republicans are already sounding the alarm about how Dayton’s plan would send businesses running for the borders because our tax system will be so out of whack.

Let’s take a deep breath here and look at some numbers.  A couple of years back, I looked at a study by the Council on State Taxation ( a consortium of 600 businesses) regarding state and local tax rates.  What we found in that Minnesota had lower taxes as a percentage of economic activity than the national average and many states in the region.  Maybe it’s time we look at how the numbers have changed over the last two years.  Here’s a link to the new study.

Well, not much has changed in two years.  Minnesota continues to be below the national average, and slightly ahead of neighboring states like South Dakota and Wisconsin.  And while Minnesota’s tax percentage has increased from 4.3% to 4.5% in that time, that rate of growth is slower than the national average (which increased by 0.5%).  What happens if Dayton gets his entire tax proposal?  Minnesota goes from 4.5% to 4.7%, which does slide it slightly behind Wisconsin and South Dakota.

salt2012

Is this enough to drive thousands of jobs away?

Seems unlikely, since our position slightly ahead of these states previously didn’t encourage large migration of jobs into the state — and the state out of all those on the chart experiencing the highest job rate increase is North Dakota, which also has the highest percentage of taxes as a percentage of gross state product.  The reality is that tax policy is one of many factors that drive economic growth and business investment.

There are plenty of reasons to like or dislike specific elements of the Dayton tax plan.  I’ve been clear about things that I do and don’t like.  The job of a minority party isn’t just to grandstand and say no.  They should be working to make the plan better where they can — certainly DFLers aren’t entirely united behind the plan and some would be glad to grab on to some reasonable alternatives.  Instead of biting Commissioner Frans’s head off, they should be offering their own suggestions.

Will they do so?  Sadly, I’m not optimistic.  The incentives in our political system today seem to favor confrontation over cooperation, and power-grabbing over problem-solving.

 

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17 Responses to “Setting the record straight on business taxes again”

  1. Do you think the average business pays it’s taxes based upon taxation rates versus economic activity levels? Of course not. They pay them as a percentage of their income. You understand that’s why Delta isn’t based here any more right? If we had friendlier taxes, Delta would be here. Stop measuring everything against GSP or GDP. It doesn’t matter to a business’s bottom line. You Demnocrats really need to make a payroll I guess to undestand how all of this works, because you clearly do not get it at all.

    • If you’ve ever talked to anybody who works for Delta, you know their culture is Atlanta-centric (and they run more traffic through that airport than they do in MSP and Detroit combined). If you look at the history of all their acquisitions, they have consistently consolidated operations in Atlanta after all of them. Taxes may have been a secondary reason for making some of those moves, but it sure wasn’t the primary one.

    • I’d also point out, then, that according to the Minnesota Center for Fiscal Excellence, our corporate income tax collections per $1,000 of income are below the national average (of the 46 states that have a corporate income tax) despite our high statutory tax rate — something that indicates that reform along the line of Gov. Dayton’s (eliminating exceptions and lowering the rate) is not only going to be more fair but can improve our competitive positioning.

      http://www.fiscalexcellence.org/our-studies/hdmcfy10final.pdf

  2. Real, useful information:

    http://forum.uschamber.com/sites/default/files/Enterprising-States-2012-web_59.pdf

    Note on taxes and regulation measures, We rank terribly. Our only leading indicator is the number of business closures. Tax environments, small business survival rates, and low cost of living all below the national average. this pure baloney that our tax rate has no effect on where business survives and thrives is pure BS. We stink in this area.

    Oh, and to those who say we have an infrastructure problem? Our bridges now rank 1st in the nation. Our roads 13th.

    When you’re looking for friendly business environments, note SD, ND, IA and WI, and compare the regulatory and tax burdens versus business success rates, both small and large. Compare that to us, and the picture becomes very clear. Your asumptions are incorrect.

    • No comments on our rankings? Where’s Drew now?

    • I wouldn’t trade our state’s economy for any of our neighbors. In particular, we’re better off than WI (unemployment over a point lower and median incomes $4k higher). We must be doing something right.

      • We aren’t doing much right at all. Our economic output per job is lower. Our business failure rate is higher. Our business freindliness is lower. We are not the place to start a new business, and in fact we’re one of the worst. Our state economy could be booming if we didn’t have such burdensome taxes and regulations.

      • Why jus tmention WI, when the other 4 states all beat us handily in unemployment. Cherry picking?

        • Wisconsin has the economy that’s most similar to our own.

          North Dakota is experiencing an energy boom in the western portion of the state, and has had a traditionally low unemployment rate before that time because of worker flight, not booming industry. South Dakota and Iowa have lower unemployment rates and significantly lower median incomes (16% and 10% lower, respectively).

          The fact that Minnesota has low unemployment and high wages is a good thing. Only two other states (Hawaii and Utah) can claim to have both lower unemployment and higher median incomes than we do here in Minnesota.

          • But they all also have lower costs of living. By quite a bit. Especially when you count taxation. Do you think we can be taxed into prosperity?

            • Certainly, the Dakotas and Iowa have lower costs of living. Wisconsin is pretty comparable based on the numbers I’ve seen.

              “Taxed into prosperity” is meaningless jargon. What I believe is that as a state we should make sure we’re investing in the things that drive prosperity — good schools, good infrastructure, a safety net to protect the less fortunate — and we should tax for that in ways that make sense. I’ve criticized wasteful spending and I’ve criticized tax plans that I think would hurt the economy. Generally speaking, I favor tax codes that have lower rates and fewer deductions and credits.

              • If you look at the numbers, that investment is failing. We’re doing great on education. Great on infrastructure. but lousy on cost of living, and lousy on productivity per job, and lousy on supporting business.

                • As of 2010, we had higher GDP per capita than all of our neighboring states. The Minnesota economy is larger than the Wisconsin economy even though they’ve got nearly 500,000 more people than we do.

                  Listen, I’m not going to sit here and say we’ve optimized our business environment. But, on the other hand, conservatives should be willing to tell the truth and admit that things here aren’t as dreadful as they claim to be. The numbers just don’t support a doom-and-gloom scenario. Minnesota is very competitive with our neighboring states, and on many metrics is producing superior performance.

                  • We’re not at all competitive looking at the numbers. Lower half of the country in business tax environment for long term and short term, and overall. Lower half of the country on high cost of living. TOp ten in what? Business deaths! That’s not good.

                    Compare to WI. WI has a lower cost of living. WHile they also have a top ten in business deaths, they do redeem themselves somewhat with top half small business survival rates and small business tax enviroment.

                    We might have had higher GSP, but the growth is lower than the others. The tax and regulations section says it all. We are NOT attractive when it comes to business.

                    • I don’t believe that we’re in the bottom in terms of business tax environment. Our collections are below national average as a % of GSP and as a % of income. There’s certainly some reform that would be useful, but it’s not as dire as you present.

                      Incidentally, one should note that one reason we have a high rate of business deaths is because we also have high rate of business creation. From 2002-2011 (according to the Bureau of Labor Statistics), we’ve created new companies at a higher rate than WI every year and at a equal or higher rate than SD in eight of those ten years.

                    • Thank God people keep trying. But productivity versus the number of jobs is not a good indicator of where to do business. As are our lousy tax rates. Businesses aren;t going to look at the tax rate versus GSP. It’s meaningless to a company. Their tax rates are and their regulations are what matters to them. Every quarter they will pay that rate no matter what percent ends up being the percentage of GSP. To a business, the state’s fiscal ratings are not their chief concern. The bottom line them is. And a high business failure rate, and a low start up business success rate keeps Minnesota from being attractive. These are what businesses look at.

                      The company I work for just merged with a CA company. The CA company actually purchased us, but will be headquartered here. Any idea why? If ou guessed because CA isn’t business friendly, you would be right. The company will save millions by being here over there. If it were an option to choose a new location, MN would have lost as well. They will likely move some day, especially if the DFL continues to punish business and high income workers.

                      It’s only a matter of time before SD, ND and IA catch up to us in economic strength. Because they are the new draw. For workers and businesses alike.

                    • Maybe that can be our new Business Marketing Slogan. “Minnesota, Hey California is still worse!”

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