Even They Can't Explain It

In case you missed it, WCCO AM 830's John Williams interviewed Tina Smith, Chief of Staff for Governor Mark Dayton Tuesday (1/22) afternoon.  Below is my transcript, edited for clarity and brevity. 

Despite failing to ask some obvious follow up questions like, so where are the corporations going get the money for these new business to business taxes, there is no doubt that Smith is stuck playing a weak hand. 

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Williams: How did the Governor’s pitch go today?

Smith: I think it went really well. He really laid out a pretty bold plan for how to move Minnesota forward. He’s talking about lower property taxes, investments in education and jobs, and a tax system that’s going to be more fair for Minnesotans. The response so far has been really encouraging. People are tired of the same old kick the can down road and seem to be quite interested in what he has to say.

Williams: Is the plan to spend more money the next two years, the same amount, or actually less?

Smith: The plan is to spend more money, particularly on education and jobs programs. The Governor is recommending that we invest more in early education which is so important for getting our kids off to a good start, optional all day Kindergarten, more money for schools all across the state, and then putting some money into the MnSCU system and the University so that people are getting trained for the jobs that are in demand.

Williams: Two things I liked were tuition help and lower property taxes.

Smith: Property taxes are huge. Everyone feels it. They have gone up 86 percent in the past 10 years and the Governor feels that is totally unfair. He is proposing that every homeowner in Minnesota would get a property tax rebate of up to 500 dollars. You would get it on your income tax return as a refundable credit, the cash difference if you paid less than 500 dollars. That would affect every single Minnesotan.

Williams: What about tuition relief?

Smith: The average kid who is getting out of college these days has something like 30 thousand dollars in debt. It’s just terrible so the Governor is proposing to, one, give money to the University of Minnesota to help them keep tuition down. Second, he proposes to add 25 percent to Minnesota’s Student Aid for Higher Education Program. That would make higher education more affordable for thousands of middle class Minnesotans.

Williams: Where are you going to get the extra money?

Smith: First, the Governor asks the richest top 2 percent of Minnesotans to pay a little bit more on their income tax. A family of four making around 300 thousand dollars a year, 250 thousand of that taxable, would pay 2 percent more on that top 2 percent of your income.

Williams: What the top state tax bracket now?

Smith: This would add a fourth bracket for that top 2 percent for incomes above 250 thousand dollars.

Williams: So you’d be at 9.85 percent right, almost 10? That sounds like a large number.

Smith: It would be but keep in mind that’s not 10 percent on all of your income, just 10 percent on that highest piece of your income. Another thing to keep in mind is that 98 percent of Minnesotans won’t pay any more and in fact under the Governor’s plan will get a property tax rebate of up to 500 dollars so they’re actually going to do better. The other really significant thing the Governor proposes is lowering the sales tax rate by 20 percent, from 6.875 percent to 5.5 percent. But then he’s broadening the base to include some additional goods and services. Food is still exempt. Medical services are still exempt. But you would be paying sales tax on more services. The most important thing to keep in mind is that because the rate comes down so far, it will be a wash for most Minnesota families.

Williams: If 98 percent of us are going to pay less, then how in the world could you possibly get more money? It doesn’t work. The 2 percent doesn’t have all the money we need.

Smith: We’re broadening that sales tax base to services that are paid by consumers and also by businesses. The Governor’s budget raises about 2 billion more dollars and some of that comes from that sales tax broadening.

Williams: But the sales tax is where the middle class lives. Even if 98 percent of us won’t see an increase in our income taxes, 100 percent of us will end up paying more for goods and services, including the middle and lower class, right?

Smith: Well, no, not really. No one ever really thinks about this, but right now businesses are exempted from paying sales tax on a lot of different services. So what the Governor is proposing is that the sales tax be expanded to services, consumer services as well as business services.

Williams: Ice skating lessons. Plumbers.

Smith: Yes, exactly, and lawyers and accountants.

Williams: So now my 50 dollar ice skating lesson is now 53.50. My income tax may not have gone up but now I have to pay more whenever I take a skating lesson.

Smith: You currently pay 6.875 percent on all sorts of goods. What’s happening is that you’re paying less sales on those goods than your were before and paying sales tax for the first time on some services. The analysis done by the non-partisan folks at the Department of Revenue say that for the average family, that evens out.

Williams: So I’m paying less as a rate but on more things. For the average family that evens out. So I’m assuming that for the 98 percent of us or so, it’s even steven.

Smith: Yep.

Williams: Then where do we get the extra billions of dollars?

Smith: It comes from basically two places. There’s money from asking the richest 2 percent to pay more.

Williams: I’m all for that!

Smith: That’s about a billion dollars.

Williams: Phil Mickelson, if you’re listening, I know you won’t move here. Go ahead.

Smith: In the grand scheme of things, no one wants their taxes raised, it’s doable.

Williams: OK, so the 2 percent pay more. And then what else?

Smith: The broadening of the sales tax, particularly for businesses and others that aren’t paying on services right now, that creates the rest of the money.

Williams: So an interesting question is: what’s the threshold? Raising taxes on single workers making more than 150 thousand dollars brings in over a billion dollars extra according to the Minneapolis Star Tribune. We’re also going to tax tobacco. That’s the new rich then according to you and the Governor, I guess, right? If you’re making more than $150,000 as an individual, $250,000 as a family, you’ll have to pay more. You’ll move to that fourth bracket, right?

Smith: But keep this in mind: who’s paying right now? Right now, middle class Minnesotans all over the place are paying more than their fair share of property taxes, and honestly, more than their fair share of sales taxes because a lot of businesses aren’t paying nearly as much in sales taxes.

Williams: Understood. One more question. What’s the threshold for clothes?

Smith: The Governor proposes that for clothes under $100, you pay no tax. Over $100 you would pay the sales tax rate of 5.5 percent.

Williams: It will be interesting to see how this washes out and how receptive the Legislature is, but at least that’s what the Governor would like to do, right?

Smith: As the Governor says, I get the first word but the final word and he’s ready to go to work with the Legislature and move Minnesota forward.

Comments

[J. Ewing]

Isn't it interesting how these fabulists believe the State can take a couple billion dollars out of the Minnesota economy without any Minnesotan having to pay it. Wouldn't it have been a lot easier to just take the billion spent on last year's DFL campaigns and spend that? How about a 50% sales tax on all purchases of politicians?

[Give2Attain]

http://www.mmb.state.mn.us/budget2013/doc/budget/bud-op/op14/presentation.pdf

Check out slide 9. It doesn't seem to square with the answers. Looks like most of the revenues come from the sale and sin taxes...

[Give2Attain]

Slide 6 is also interesting. At first I thought, well they only raised it from $36,861 to $37,892, no big deal... Then I remembered that these numbers are in MILLIONS !!!

That means they are spending an additional $515,500,000,000 per year !!! Ouch when it is put that way. And that is when it is compared to the 2014/15 forecast.

It is much worse when compared to the 2012/2013 actual...
http://www.mmb.state.mn.us/doc/budget/report-spend/aug11.pdf

[Hiram]

so where are the corporations going get the money for these new business to business taxes, there is no doubt that Smith is stuck playing a weak hand.

Where does the burden of the tax lie? It might be on the owners of the business, the managers, the employees, or the customers. The answer depends on things like elasticity of markets.