Monday, February 18, 2013

The current sales tax debate in Minnesota

Mark Dayton's 2013 budget proposal includes numerous changes to the tax code which include closing the loopholes on the corporate tax, giving some property tax relief while at the same time decreasing the overall sales tax.  The way in which he is able to achieve these goals is through increasing the taxes on the top 2% and expanding the current Minnesota sales tax.  His rationale is that property tax , income tax and sales tax should be more like the chairs of a stool in that they are "fair" across the spectrum of taxable revenues.
Dayton's Tax Reform

What is hardly discussed on the govenor's budget and his highly publicized is the reaction to the change in the tax code for the Mom and Pop type companies that might have to add sales taxes to any sale over $100.
Initial Star Tribune Article
Follow Up Article

It has become such a hot button issue that the proposal and the video that the star tribune created is currently the most watched.
Interviews at the Mall of America

So where do we go now?
Considering that sales tax is the largest revenue generator for the state, it would seem that if the increase in a sales tax's breadth makes sense for Minnesota but the public outcry against it might make it politically unfeasible even if it is the optimal solution for Minnesota's tax code.  Ironically this would actually move Minnesota down in the national sales tax from #7 (at 6.875%) to around # 29 (at 5.5%) at the overall rate.  The numbers I do not have is what is the percentage of revenue by tax base that Minnesota currently uses compared to the nation.

And just because I like the economic (not specifically the financial) theory behind why it is so hard to change tax codes, here is a bit on the status quo bias.
Super nerdy Econ Theory on why people hate change

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