Tuesday’s Minnesota Chamber of Commerce Session Priorities event may have been full of literature, displays and speeches promoting business interests, but House Speaker Paul Thissen wasn’t shy about telling business leaders that they won’t be getting some of the biggest items on their wish list.
For starters, the highest income tax bracket is not going away, the DFLer from Minneapolis predicted. There will be a minimum wage hike, and that new minimum wage will be closer to the high end than the low end, he said.
“Quite frankly, I think this is the right direction for Minnesota to go. I know that’s going to disappoint a lot of the people in the room, but I think it’s where we should head,” Thissen said at the RiverCentre in St. Paul, where 1,650 tickets were sold to the annual event.
The forecast was a stark contrast to a House Taxes Committee hearing earlier in the day, where there was broad support for the chamber’s biggest push — repealing business-to-business taxes. Legislators on both sides of the aisle introduced several bills repealing those taxes, and Thissen supports those efforts. But his comments demonstrate that other business priorities face an uphill battle.
Part of the reason is cost. The latest revenue forecast estimates the state will have about a $1.08 billion surplus, although legislators only have about $825 million to work with because some of the money must first go to schools and other purposes.
Repealing the business-to-business taxes would lower state revenue by about $314 million for the biennium if the repeal is made retroactive to the time when the taxes took effect, Joel Michael with the House Research Department, told Finance and Commerce. Business groups are lobbying hard to repeal a tax on storage and warehousing services for business-related goods before it takes effect April 1.
The House Research Department hasn’t analyzed the financial impact of repealing a new fourth-tier income-tax rate of 9.85 percent that legislators created in 2013, but Michael said it brings in about $1.1 billion per biennium.
Minnesota chamber leaders aren’t deaf to these financial realities. At a Tuesday panel on legislative session priorities, Laura Bordelon, the chamber’s senior vice president of advocacy, showed a list of recommended tax changes but warned that the bill for such changes exceeds the predicted surplus.
In a follow-up interview Wednesday, Beth Kadoun, the chamber’s director of tax policy, acknowledged that a full, fourth-tier repeal isn’t likely. But she added that the state could still lower its top rate from a level that puts it behind only California, Hawaii and Oregon. Kadoun said the chamber won’t have a specific alternative until the next budget forecast arrives Friday.
“I don’t think it’s in the state’s interest to be an outlier in this,” she said.
Thissen also noted that 80 percent to 85 percent of the new tax revenue will go to education, something he said couldn’t happen without the income tax increase.
“We think that’s a good investment in Minnesota,” he said.
DFLers feel the same way about a minimum wage hike. Previous proposals stalled out when the Senate and House couldn’t agree on how big the increase should be — with the Senate last year recommending $7.75 per hour and the House pushing for $9.50. This year, Thissen said legislators should be able to agree on an increase and that the increase will be closer to the $9.50 side of the spectrum.
The state’s current minimum wage is $6.15 per hour. The Minnesota Chamber of Commerce wants to limit any increases to the $7.25 federal minimum wage with provisions for youth and training wages.
Republican leaders counter that a higher minimum wage will kill jobs and that the surplus is proof that last year’s Legislature overtaxed Minnesotans. The remedy, they say, should be returning the money to taxpayers, starting by repealing the most recently enacted taxes. House Minority Leader Kurt Daudt, R-Crown, said at the chamber event that families are still struggling to recover from the economic downturn.
“I think it’s arrogant of us to do a victory lap and celebrate the fact that we have a budget surplus when Minnesota families aren’t feeling the same sort of relief,” he said.
Still, Senate Minority Minority Leader David Hann, R-Eden Prairie, is glad that both sides are supporting at least some tax relief.
“I think it’s really good to know that we’re all tax cutters now,” Hann said, playing off economist Milton Friedman’s famous “We’re all Keynesians now” quote that suggests a reluctant acceptance of government intervention in tough times.
Correction: An earlier version of this story should have said the taxes were reviewed at a House Taxes Committee hearing, not a Senate hearing. The story has been update