Minnesota tax bills spark debate on 'social engineering'

The Minnesota Capitol
The Minnesota Capitol on Thursday, Jan. 3, 2013.
MPR Photo/Hart Van Denburg

With two weeks left until the Minnesota Legislature is due to adjourn, the conference committee on taxes met last week for the first time.

Read the post-show takeaway

The Senate tax bill would raise $1.8 billion in new revenue over two years, while the House bill would raise taxes by $2.6 billion, according to news reports. Both bills, which passed late last month, include increases on the top earners in the state.

"We're going to ask those with the highest levels of income to pay a little more," House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington, said in the Pioneer Press.

House Republicans say the tax bill will hit all Minnesotans, not just the rich, according to an MPR News report. Rep. Greg Davids, R-Preston, said cigarette and alcohol increases will disproportionately hit the poor.

The Pioneer Press report, though, noted: "While they differ on other issues, the DFL governor and majorities in both houses support an income tax increase on top earners and a cigarette tax hike, so they're likely to become law."

THE TAKEAWAY: Guests debate tax policy as "social engineering."

Halfway through the hour, Kerri Miller's guests, Lenczewski and Sen. Julianne Ortman, R-Chanhassen, struck up a debate about the role of taxation in changing human behavior:

Lenczewski: There are things going on that create huge costs for the taxpayer. If you get a DWI, or you go to prison, or you go to the courts, or you have to go through chemical dependency or you need care in a hospital because you have almost OD'd on alcohol ... we're all paying for our health care and judicial system and court system and public safety system that day after day has got people monitoring our highways and seeing who's drunk driving on the roads. The same with cigarettes. If anyone believes that the current tax system for the use of tobacco even begins to touch the cost that all other taxpayers are subsidizing for smokers, there's an ignorance about the facts ... you could raise the tax on cigarettes somewhere between seven and 10 dollars a pack and not cover the total cost that the rest of Minnesotans pay who are choosing not to make that discretionary purchase with tobacco.

Now in the House we set the number much lower than that, $1.60 as pack, because we recognize that when you get past a certain amount ... you're hitting people who just can't quit. But the pricing of tobacco to either help people not start smoking or to get a bunch of people who are smoking to quit because they're price-sensitive really lowers health care costs for all the rest of us. So you're asking people who are participating in that to help recoup a little bit of the cost.

Ortman: Social engineering shouldn't be taking place in the tax code. The tax code is designed to help fund government in as fair a way, across the board, as possible. Not to punish certain types of behavior or certain types of people. And we know that the cigarette tax is a very regressive tax. It impacts the poor and the elderly first. That's not really the place for that. There are good reasons to educate some folks, but what we should be looking at is what is the cost to provide the needed government. And we should empower our families to invest. I agree with Sen. Lenczewski that investment is a good thing, but the question is, who should be investing that money? I think the hardworking taxpayers in Minnesota are better at investing that money more wisely every single day of the week. They'll invest in their kids' college education. Or they'll invest in a home. Or they might start a business or they might invest in a business. That's the kind of investment we really want in this state. Not investment of growing government.

I think we should deal with problems in a straightforward fashion and not use tax policy to punish or reward people. When the tax code is used to create preferences and pick winners and losers we end up with a tax code that isn't competitive. We have Swiss cheese. You can't anticipate what that tax burden is going to be. We lose transparency. Who's paying for what, and what are the real costs of government? So it is important on a policy basis to keep tax policy as fair across the board as possible and keep those rates as low as possible so we can be competitive.

Lenczewski: The tax code that we have in Minnesota and every other state and every nation is replete with engineering. It's difficult to find anything that does not have social engineering or financial engineering or picking winners and losers, and contrary to what people say, if we do nothing, if we change nothing, that's what we've got in Minnesota now. ... We have a program called the angel investment tax credit that asks all Minnesotans to give very wealthy people a subsidy so that they can go invest in things. To qualify for that, you have to earn $250,000. And all the other taxpayers are paying for that. We have a property tax system that is replete with engineering. We make Minnesota businesses pay twice the rate than for homeowners. We prefer homeowners, we're giving them a tax cut. We have tax-increment financing riddled across the state, where we say we're going to ask local residents to give subsidies to businesses because we'd like businesses to grow. The idea that asking people to pay more for their cigarette tobacco use is social engineering — we're doing it all the time. ...

Ortman: I would say this is where the reform is needed. Ann has given very good testimony to how complicated our tax system in Minnesota has become. ... We absolutely have to begin with simplification of our tax code, so that investors from out of state will know what their tax burden will be in the state of Minnesota.


Minnesota income tax increases virtually certain — but not tax reform
"As the 2013 legislative session nears an end, it is almost certain that the DFL House and Senate will agree to raise taxes paid by many Minnesotans. One unanswered question is whether these tax increases will be accompanied by much in the way of tax reform." (MinnPost)

Dayton's approval rating much higher than Legislature's, says KSTP poll
"This week's KSTP/SurveyUSA poll of 500 Minnesotans shows Gov. Mark Dayton gets higher ratings than the Legislature. And on budget matters, respondents don't favor expanding the sales tax." (MinnPost)

The fine print: Minnesota budget bills contain little-noted provisions
"One-party government moves quickly. Minnesota Capitol regulars have been struck by how fast major budgeting bills have moved through committees and to the floor in the DFL-controlled Legislature." (Politics in Minnesota)

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