Minnesota Lawyer
DFL Rep. Melissa Hortman introduced a bill to broaden the sales tax in 2008, and more such proposals are likely to arise when the Legislature convenes in January.
Lege campaigners avoid an issue they’ll likely have to confront in 2011
State House candidate Tom Heyd doesn’t relish the idea of extending the state sales tax to clothing. And from what he’s heard door-knocking in the conservative District 16B, voters aren’t excited about it either.
But Heyd said he would support the expansion if it was the only option to provide adequate funding for K-12 education.
“I’ve indicated that if push comes to shove, I would vote for a sales tax extension if schools will be properly funded,” said Heyd, of Becker, who is running against Rep. Mary Kiffmeyer, R-Big Lake.
The sales tax issue has been a hot topic for more than a decade among fiscal policy wonks who are concerned about the volatile swings to which the state’s revenues are prone. But on the campaign trail, few have been willing to address it. The only candidate who has consistently shone a light on it this year has been Independence Party gubernatorial nominee Tom Horner, who advocates broadening the sales tax as one way to address the state’s budget woes.
The issue, however, is likely to be a subject of vigorous debate next year among legislators who won’t have the luxury of leaving any approach to budget cuts or revenue off the table as they grapple with an estimated $5.8 billion budget deficit for 2012-2013.
Senate Taxes Committee Chairman Tom Bakk, DFL-Cook, this year introduced a budget-balancing bill that included a sales tax expansion. He noted he doesn’t particularly like the sales tax as a matter of policy. But he said legislators need to have a serious discussion about budget solutions.
“I had no dreams that somehow Tim Pawlenty was going to sign a bill like that,” said Bakk. “I wanted to get the discussion started. The problem is so serious that you can’t solve it through income taxes.”
The issue has been studied extensively. Expanding the sales tax base was a key recommendation of a Pawlenty-appointed tax panel. The Governor’s 21st Century Tax Reform Commission recommended lawmakers expand the sales tax base to a “broader range of consumer products and consumer services.”
The commission’s report pointed out that most consumer services aren’t subject to the sales tax, even though services have come to comprise a larger part of the economy in the last 35 years. Exemptions on taxing services and also several consumer products, the report mildly said, play a role in the volatile swings that the state’s budget has experienced.
“The exemptions substantially narrow the sales tax base, which makes the sales tax a less dependable source of revenue and a source of frustration – and expense – for the businesses that collect the sales tax on behalf of the state,” according to the commission’s final report to Pawlenty.
Pawlenty swatted down the panel’s sales tax recommendation. But the issue has arisen in several cases over the past decade.
In 2001, Gov. Jesse Ventura made a strong push to expand the sales tax to things like legal services and television commercials.
And in 2008, Rep. Melissa Hortman, DFL-Brooklyn Park, offered a revenue-neutral bill to expand the sales tax and lower the statewide tax rate from 6.5 to 4.5 percent. (Hortman proposed the rates before Minnesota voters passed a ballot initiative that increased the sales tax to pay for outdoors and cultural projects.)
The subject of sales taxes is complicated in its minutiae and poorly suited to campaign trail soundbites. Among the issues that confront lawmakers are the question of whether business-to-business purchases should be taxed and the regressive impact of sales taxes on the public as a whole.
One way to address that impact to consumers, Heyd suggest, is to allow occasional sales tax holidays. Hortman’s proposal to lower the rate is another means of lessening the impact of a broader sales tax. Heyd’s opponent Kiffmeyer, however, said citizens are skeptical that politicians would actually lower the rates. She said she doesn’t see much appetite for broadening the sales tax.
“What I’m hearing in my district is: ‘Are you kidding?'” Kiffmeyer said.
Candidates for the most part are debating the more progressive revenue vehicle in the state arsenal: the income tax. But income tax revenues are inherently volatile; they rise or fall according to the performance of the economy to a greater extent than sales or property taxes.
Bakk said if lawmakers aren’t willing to reform the sales tax, they will most likely need to increase the state’s reserves when times are good in order to provide a buffer against the volatility of income tax revenues. Either way, lawmakers have a difficult task ahead to solve the budget and implement a stable revenue policy at the same time.
“We cannot continue this roller-coaster ride,” said Bakk. “I think it undermines the public’s confidence.”
Trail mix
AN INDEPENDENT legislative candidate in House District 31B is struggling to stay in the general election after a local election official disqualified him.
Al Hein filed to run as an independent against Rep. Greg Davids, R-Preston, and DFL challenger Steve Kemp. Candidates like Hein who don’t have political party backing must obtain 500 signatures to be nominated by petition. The Fillmore County auditor/treasurer concluded that Hein didn’t get the signatures.
Hein, who unsuccessfully challenged Davids as a DFLer in 2000 and 2002, has reportedly said he plans to petition the Minnesota Supreme Court to keep his candidacy alive. Even if he is disqualified, however, his name will still appear on the already-printed ballots.
The presence of a third party candidate in the race could add an X-factor to an already unpredictable district.
Davids narrowly regained his seat in 2008 after narrowly losing it to DFLer Ken Tschumper in 2006.
Third party candidates in competitive legislative races have already been subjected to legal scrutiny this fall. In District 11B, where Republicans are hoping to take the seat held by retiring DFL Rep. Mary Ellen Otremba of Long Prairie, a local Republican challenged Bert Pexsa’s candidacy because he accidentally filed as an Independent rather than an Independence Party candidate. The Minnesota Supreme Court threw out a lawsuit against local officials in District 11B who allowed Pexsa to amend his filing…
IN A SIGN OF bad news for Democrats’ prospects nationwide in November’s election, the nonpartisan magazine Governing increased its estimate of the number of Democrat-controlled state legislatures that are vulnerable.
Minnesota isn’t among the state legislatures that Republicans are likely to flip. The magazine rates Minnesota as “likely Democratic,” which is one step down from “safe Democratic.” The magazine’s survey says the Minnesota House is a more likely takeover opportunity for Republicans than the Senate:
“The House has more seats in play, in part because the DFL currently occupies a number of seats that, by the numbers, ought to be held by the GOP. A takeover of the House is unlikely, but not out of the question. The Senate, meanwhile, has interesting matchups, but it is considered less likely to flip.”
Back in July, there were 21 Democratically controlled chambers in play by the magazine’s estimation; now there are 25.
