PoliGraph: Tax bill raises taxes on some, not all

This year's legislative session may be over, but that doesn't mean you'll be hearing less from state lawmakers.

Over the next few months, expect Republicans to hone this talking point in the run-up to the 2014 elections: Gov. Mark Dayton and the Legislature broke a promise to tax only the state's wealthiest because they've passed a bill that includes taxes that will affect everyone.

Versions of this talking point have already surfaced on Twitter with the hashtag #taxeveryonebudget, in press conferences and in videos.

In fact, the effects of those new taxes are more complicated than that.

The Evidence

Earlier this week, the Legislature approved a $38 billion two-year budget that erases the $627 million budget deficit. That's partly because the Legislature also approved $2 billion in new revenue, which is partly funded through an income tax increase on Minnesota's wealthiest 2 percent.

That's something Dayton said he would do since he ran for office in 2010: raise taxes on Minnesota's top earners to make up for the budget shortfall.

But the Legislature also approved other taxes that could affect a broader segment of the state's population.

For instance, the bill raises the cigarette tax by $1.60 per pack. Dayton has acknowledged that the tax is regressive - meaning that it will hit lower income Minnesotans hardest - but that he decided to back the idea because he believes it will discourage people from smoking.

And it imposes the state sales tax of 6.875 percent on some business-to-business services, including telecommunications equipment, industrial equipment and warehousing and storage, among other things. The statewide sales tax is on top of local sales taxes, too.

But whether the average consumer feels the effects of the service taxes isn't clear.

Red Wing Shoes opposes the new tax, which Marketing and Communications Director Peter Engel says could mean a 7 percent increase in the company's annual costs.

Right now, Red Wing is deciding whether open a new warehouse facility in Minnesota or in Missouri, where the company also produces boots and where there is no business-to-business tax. Minnesota is already poorly located for shipping shoes across the country, Engel said.

"You add tax on top of that in terms of factors that will influence the location, and it negatively affects the Minnesota opportunity," Engel said.

But will the cost be passed on to consumers? Not necessarily, said Engel. Red Wing boots are already expensive.

"We're going to have to decide, 'can we pass that on or are we going to have to find a different warehousing solution,'" Engel said. If the company decides to relocate its warehouse to Missouri, some of the jobs at the Red Wing warehouse would disappear.

Beth Kadoun, director of tax and fiscal policy for the Minnesota Chamber of Commerce, says the state could also see businesses that provide the services subject to the sales tax leave the state, which could mean job losses.

Corporate tax revenue will also increase because the bill ends some corporate tax breaks. The Minnesota Department of Revenue predicts that doing so may result in a combination of higher costs for consumers, lower wages and smaller profits for business owners. A lot will depend on whether a business decides to absorb those costs or pass them along to customers.

Meanwhile, other taxes that would have affected most Minnesotans were dropped from the final bill, including a tax on alcohol, a gas tax and sales taxes on transit.

The Verdict

Republicans say that tax changed approved by the DFL Legislature and Dayton will affect everyone.

But that's too simplistic. The income tax increase will only affect Minnesota's wealthiest, the cigarette tax will only affect people who smoke, and the business-to-business services tax may result in job losses, not necessarily higher prices for consumers. And while changes to the corporate tax code could mean consumers are shelling out more cash for some products, the Department of Revenue can't say how much or for which products.

This claim is misleading.

SOURCES

Minnesota Public Radio, Budget in hand, Legislature adjourns, by Tim Pugmire, May 21, 2013

Minnesota Department of Revenue, Selected Sales Tax Items, May 20, 2013

Minnesota Department of Revenue, GOVERNOR'S Supplemental Budget Tax Proposals

HF 677 (Lenczewski) and SF 552 (Skoe), revised May 11, 2013

Ryan Brown, Minnesota Department of Revenue

Beth Kadoun, Minnesota Chamber of Commerce

Peter Engel, Red Wing Shoes

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