Principles for Fiscal Policy Reform
In the current context, where near-term budget challenges must be balanced with future job creation and retention in a global economy, the Partnership bases its Fiscal Policy Priorities on two principles that are essential to Minnesota’s economic recovery, global competitiveness and long-term prosperity:
- Create a tax structure that will make Minnesota more competitive, retain and create jobs and improve the stability of the state budget.
- Reform Minnesota’s budget and spending practices to achieve greater fiscal restraint, prioritize spending and improve delivery of public services.
Comprehensive Tax Reform and a Competitive Tax Structure
To make Minnesota more competitive, encourage business investment, improve job creation and retention, and reduce the volatility of state revenue, the Partnership supports comprehensive tax reform that reduces business taxes and broadens the base of consumption taxes. This is consistent with recommendations from “blue ribbon panels” and reports over the past 20 years.
Competitive tax structure
Eliminate the corporate income tax: Encourage business investment and job creation and retention by repealing or phasing out Minnesota’s 9.8% corporate income tax. In the interim, accelerate the phase-in to single sales apportionment and expand the research and development tax credit.
Provide tax incentives for small-business investment and growth: Encourage innovation, entrepreneurship and small-business growth with angel investment tax credits and other incentives.
Personal income taxes: Minnesota has the sixth highest personal income tax burden in that nation, according to the Minnesota Taxpayers Association report, "How doe Minnesota compare?" Minnesota's three income tax rates are all high compared to other states, according to the Tax Foundation, State Individual Income Tax Rates, 2009. We oppose increasing Minnesota's personal income tax burden, which would hurt working families and further discourage job creation in Minnesota.
Business property taxes: Employers pay a statewide property tax in addition to paying higher local property taxes than homeowners. As a result, commerical/industrial property, which accounts for 12% of all property value in Minnesota, pays more than 30% of all state and local property taxes, according to House Research Property Tax 101. In this sturggling economy, we oppose efforts to further shift the tax burden to business property, which would further discourage business investment and job creation.
Sales tax reform
Broaden the base: At 6.875%, Minnesota has the sixth highest sales tax rate in the nation. Because the tax falls on such a narrow base, however, we rank 17th in state sales tax revenue per capita. Broadening the base to additional consumer goods and services would realign Minnesota’s tax structure to reflect changes in our economy and reduce the volatility of state tax revenues.
Lower the rate: Provide tax relief to consumers by reducing the sales tax rate and/or enacting personal income tax reductions/credits.
Capital equipment sales tax: We advocate converting the sales tax refund to an upfront exemption.
While working with others to generate broad support for comprehensive tax reform, we also will seek opportunities to pass incremental changes that would improve Minnesota’s ability to retain, create and attract jobs.
Structural Budget and Spending Reform
Addressing our long-term fiscal challenges requires structural changes to improve spending prioritization, increase taxpayer return on investment and produce overall spending restraint. Here again, thoughtful, nonpartisan recommendations have been discussed for years. And new plans are being offered. The Partnership will support workable proposals that achieve reform. Possible examples include the following:
Structural budget reform
- Legislation basing permanent spending decisions on trend line revenue growth, and limiting the use of any “excess revenue” to one-time spending or replenishing budget reserves.
- A constitutional amendment to limit general fund spending in a biennium to the amount of actual general fund revenues received in the previous two-year budget period.
- Legislation to set budgets based on specific public policy goals and benchmarks.
Program and service delivery reform
- Incent local governments to share services and redesign programs to be client-focused and outcomes-based.
- Replace state mandates with outcomes-based programs and use competitive bidding and strategic sourcing to deliver services.
- Make public sector compensation more comparable to the private sector.
For more information, contact Fiscal Policy Director Jill Larson.