Sunday, July 29, 2012 By Aaron Brown
By Aaron J. Brown
As the old saying goes, the only sure thing in life is death and taxes. But how you die and how you’re taxed is not inevitable. People’s choices make a difference. Here in Minnesota we must ask some serious questions about why government and taxation are becoming less efficient and effective for the century that lies ahead. While death may remain out of the purvey of human control, tax fairness is achievable. We know this because Minnesota has done it before.
Earlier this month, Myron Frans, commissioner of revenue, toured northern Minnesota, including stops here on the Iron Range. He carried with him a unique three-legged stool, one that no person would be able to sit upon safely. The uneven legs represent a growing problem in our state: how we pay for things is out of whack and increasingly unfair.
It works like this. For decades, the people of Minnesota have financially supported their state and local governments in three ways: the income tax, the sales tax and property taxes. There are other revenue sources, including fees and regional-specific taxes like the Range’s taconite production tax, but those are the big three. And for the longest time the three represented, more or less, about 1/3 each of the state’s revenue picture. However, in the 1990s and especially in the 2000s, that proportion began to change.
Frans said in the last decade, the tax blend has shifted to 40 percent reliance on local property taxes, 1/3 on the income tax and just 26 percent on sales taxes. The reasons for this change are many and the effects can be seen all around us.
For one thing, Frans said the political mood of the legislature in recent years has been to fix or even reduce income tax rates while cutting aid to local governments and schools. With Local Government Aid (LGA) and school funding on the ropes, communities and schools have had to increase property taxes, in many cases on the backs of people on fixed or low incomes who can’t afford the increases. Then last year the legislature cut the homestead tax credit for Minnesota homeowners, a double whammy of state cuts and inevitable property tax increases.
That, says Frans, is one of the main reasons property taxes have taken an increased role in funding government, something he says cannot be sustained in the future.
“We can no longer shift the burden of responsibility down to school districts and cities,” said Frans.
As property taxes have increased as a percentage of taxes, sales taxes have decreased, and it’s not because those taxes have been reduced. Rather, Frans said, the economy is changing. For one thing, since the recession of 2008-2009 people have been buying less than they otherwise would. But bigger than that, our entire economy is going through a transition from a goods-based model to one reliant on services. Services are taxed differently and often not at all.
So what does all this mean? Well, what I took from my conversation with Frans is that we have a series of unpopular choices available to us, the worst of which we’ll end up with by default if we don’t do anything.
We could increase state income taxes on high wage earners to pay back the money robbed from schools in the “shift” last year and possible ease the local property tax burden. We could expand the sales tax to services which would tax things we’ve never taxed before, like auto repairs, haircuts and ... writing newspaper columns as an independent contractor? Or we could continue to starve state government, watching high value suburbs adjust and small towns and urban areas suffer. That one is actually already happening and will only get worse through inaction.
Opponents of income tax increases for high wage earners often prefer to ignore the effect their policies have on local property taxes. “Don’t blame us; your city councilors and school board members did it.” That’s a very cynical approach. Minnesota became one of the nation’s healthiest, most prosperous states in the 1970s, even through the dark 1980s and into the ‘90s, because of tax fairness that factored in the cost of well-delivered government services at state and local levels.
If you want services cut and reduced quality schools, vote for that. But you’re not voting for a low tax utopia. You’re voting for fewer services.
There remains an honest reality to the tax situation in Minnesota. A tax is a tax, whether it comes from our house, our paycheck or our purchase. We are smart enough to figure out a fair system and let’s hope that happens soon enough to help the students and workers of the next generation.
Aaron J. Brown is an author and community college instructor from the Iron Range. He writes the blog MinnesotaBrown.com and hosts 91.7 KAXE’s Great Northern Radio Show on public stations.