The Free Press, Mankato, MN

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March 2, 2008

Our View — Stability should be tax goal

Minnesota’s system of taxation may be the most debated, least acted-upon issue in the history of its government.

Yet, the recent budget forecast, which projects the second or third multi-million dollar deficit in almost as many budget cycles, suggests there may be some improvements that can be made to even out the revenue stream.

In the 1980s there was the Minnesota Tax Study Commission, which produced volumes of detailed analyses and recommendations of how to make Minnesota’s tax system more equitable and more stable. Many, if not nearly all, of its recommendations where tossed aside. There’s an incentive to resist change when things are going well. Unfortunately, that forces more painful changes when the state hits a recession and revenues dry up.

As such, Gov. Tim Pawlenty has called for another tax study commission, this time aimed at making the state better for businesses and job creation.

It’s telling that the governor feels we have to study the issue. Not long ago, the mantra from his party was that cutting taxes was all one needed to do to create jobs. The evidence suggests rather strongly that tax cuts are not stimulating job creation.

Over and over again, businesses, when answering honestly, will say an educated, competent work force is more important than taxes. Employers, of course, want to pay the lowest taxes possible, but it really comes down to how prepared a work force is adapt to a constantly changing business environment and challenges from competition around the world.

Some things the tax study commission of the 1980s came up with still make sense today. The bipartisan commission, chaired by former St. Paul Mayor George Latimer, suggested a wheelage tax for transportation, something Gov. Pawlenty has mentioned himself. It could be based on the weight of vehicles, thus equating it with the damage they do to roads, versus a gas tax, which simply is based on fuel consumption.

Lowering the sales tax rate while broadening the base was an idea Gov. Jesse Ventura championed, perhaps taking a note from the Latimer commission. The idea of spreading a tax out among more industries certainly, on the surface, makes sense as a way to even out ups and downs when one industry hits a slump.

Even the kind tax breaks we provide can make a difference for a business. Should we allocate more tax breaks to technology companies for research and development, or do we still need to subsidize three-martini lunches between executives? Each has a public cost in Minnesota by the money we forego in providing the tax break.

In the most recent budget, Minnesota loses $6.2 million a year in potential taxes by allowing employers to write off three-martini lunches. We should question if such tax breaks could be put to better use.

This kind of tax reform is badly needed, especially given the recent history of instability in the Minnesota revenue stream.

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