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Thursday, July 16, 2009

The Start of a Proposal for Tax Reform in Minnesota

Those of us who live in Minneapolis understand the problems with our taxation system and know that ultimately needs to be reformed. Minneapolis is a net economic producer, yet we continue to have our tax revenues siphoned away. I am trying to come up with some coherent ideas to propose to our Gubernatorial candidates.

I want to throw out an idea on taxes in Minnesota. I operate under these two indisputable premises (I believe them to be true and don't want/need the discussion to focus upon a debate of these two things, I want the debate to focus upon the proposal.)

Premise #1. The people of Minnesota want a high caliber public education system (K thru college), a moderated level of government services and a booming economy and most of us don't mind paying for that.

Premise #2. We already have failrly high levels of taxation on businesses and high levels of taxation lead to decreased business expansion. Furthermore, if a business sees the opportunity to leave Minnesota and go to a state where there is less cost-of-business, they will eventually do that. Business are not and never will be altruistic.

David DeGrio's Pro-Growth Tax Reform Strategy

1. If you are an employee of the State or any local municipality, you must live in and pay taxes in Minnesota. Let's stop exporting our economic vitality to Wisconsin, Iowa and the Dakotas.

2. Eliminate tax reciprocity agreements with all other States and make non-residents who earn money here, pay taxes here. If you work in Minnesota, every dollar you are paid should be taxed by the Minnesota Income Tax.

3. Eliminate the income tax on hourly overtime. Most people who work overtime are rarely doing it because they want to spend more time away from their families, most do it because they require the additional income to support their families. By eliminating the income tax on overtime work we can reduce the amount of time mothers and/or fathers have to spend away from their children. By doing this, we provide an opportunity to strengthen the family relationship, give kids the opportunity to have their parents help them with school work and have bonding time.

4. Eliminate the income tax on tips earned by people in the service sector. People don't work jobs in the service sector (like being a bartender, waitstaff, valet driver, etc.) to become rich, they work those jobs because they provide a means to support themselves and oftentimes their families. No one who worked as a server at Olive Garden, Applebee's or Perkin's for 10 years or more is rolling in dough.

5. Now, here's the biggie. Eliminate the Minnesota Corporate Income Tax and allow small businesses to make up to $1,000,000 (or some other appropriate number) per year without paying income tax. Since a small business owner pays herself or himself a wage, they would be taxed under the income tax, but any of the extra profits should not be taxed. This policy would create a climate in which businesses and companies would want to establish operations in Minnesota because they could continue to invest profits into expanding the company, hiring new employees and giving grants to their surrounding communities. Keep reading, those of you who are liberal/progressive are probably yelling at me right now.

6. Create another tax bracket, or two, in Minnesota at the highest income levels (see now the conservatives are yelling at me too.) Say we create a bracket for people who earn up to $500,000 and another for those who make over $1,000,000 (or some other appropriate income levels.) As the number of companies and businesses in Minnesota grows, there will be more senior level or executive level jobs in our state so revenue collections will continue to grow as that tax-paying sector grows. Furthermore, since we have eliminated the reciprocity agreements and are ensuring that non-resident income earners are paying income tax, people won't be able to evade paying income taxes by setting up residence in other states (like Florida.)

Now, I understand that this proposal flies in the face of the traditional views of both the Republican and the Democrat/DFL tax philosophy; however, we need serious tax reform in Minnesota otherwise we are going to continue down the destructive path of Tax-borrow-spend, or cut taxes-still borrow-still spend that has plagued our State (and Country) for too long. Please keep comments respectful, thought-provoking and civil. Thanks!


heisenberg said...

Where do you get the money from? People can move too, easier than corporations can, with established good will.

Also, what about luxury taxes - the Lexus, the BMW, vs the Prius and Hybrid Ford Explorer?

What about Constitutional dimensions, full faith and credit, federal preemption? What about the Delaware corporation headquartered in say New Jersey, that pays a salary, but requires the total time of a fiscal quarter worked in New Jersey before stock options vest - are they earned in Minnesota, or in New Jersey?

And I will qualify one premise - excellent education K-post graduate. The PhD and MD and JD crowd are not to be ignored.

Gavin Sullivan said...

Re: "Minneapolis is a net economic producer, yet we continue to have our tax revenues siphoned away."

Please provide evidence for this assertion.

Anonymous said...

This policy would create a climate in which businesses and companies would want to establish operations in Minnesota because they could continue to invest profits into expanding the company.

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