Tax Justice Digest stories about Minnesota
At a time when it seems like only the worst kinds of property tax reform have any chance of gaining steam, the Minnesota House recently came through with a reform bill that completely bucks the trend.
Expecting that property tax bills in Minnesota may soon grow a bit too high for comfort for some families, legislators avoided the temptation that we’ve seen take hold elsewhere to carelessly slash property taxes without regard for how those cuts will affect families of varying income levels. Instead, the House has proposed expanding the state’s “circuit-breaker” credit to include many more families than are currently eligible, and to provide many families already benefiting from the credit with even more relief.
Just as appealing as the expansion of the state “circuit-breaker”, however, is the means by which Minnesota plans to pay for that expansion. The House has proposed ending the state income tax deduction for property taxes paid. This deduction overwhelmingly benefits better off taxpayers who are more likely to itemize, and for whom deductions are more valuable since they pay income taxes at a higher rate.
The combination of these changes is a significant step toward making less unfair a starkly regressive property tax in Minnesota. Scaling back the state’s existing homestead credit will also provide funds with which to pay for this better-targeted relief. Finally, the bill would also eliminate what is estimated to be a $186 million loophole for foreign operating corporations.
Unfortunately, there are serious obstacles to the bill’s passage. First, the Senate has been contemplating a different approach in which state money would simply be given to local governments, in the hope that an influx of funds would encourage localities to cut taxes. Fortunately, Governor Pawlenty is not on board with this plan, preferring relief be given directly to taxpayers. But the Governor is also not yet on board with the House’s plan. Pawlenty continues to insist that a firm cap on increases in local property tax collections must be the “linchpin” of any reform. The House added a levy limit on local governments to its bill in an attempt to accommodate the Governor, though that limit is not as strict as he has requested. Hopefully the Minnesota legislature will be able to push this bill through without too strict a limit on local government revenues. Such limits generally tend to leave local governments hurting for funds as the rising cost of providing government services outpaces the allowed limits.
Over the past few months, there’s been a movement in Missouri to expand the circuit breaker program that benefits low-income property taxpayers. In addition,
To read more about benefits of the
Earlier this week, legislators in Minnesota overrode Governor Tim Pawlenty’s veto and enacted a $6.6 billion transportation plan, one of the key elements of which is a 8.5 cent per gallon increase in the state’s gas tax. While higher gas taxes tend to fall harder on low-income individuals and families, the plan does include a refundable low-income tax credit of up to $25 per family to help mitigate the regressive impact of the larger levy. Other states considering proposals to raise their gas taxes to meet transportation funding shortfalls would do well to follow
A gas tax increase that will soon be before the Nebraska Legislature may also be worth emulating in some respects. A bill there would effectively increase the state’s gas tax by 3 cents per gallon. But it is the means by which that increase would be accomplished that is notable. The bill would reduce the existing gas tax by 8 cents per gallon and instead impose a tax equal to 5 percent of the wholesale price of gas. Using what amounts to a sales tax on gasoline rather than an excise tax is preferable since it ensures that state revenues are more responsive to economic growth.
Lastly, raising the gas tax wasn’t envisioned in New Jersey Governor Jon Corzine’s transportation or budget plans, but, in a new report, New Jersey Policy Perspective (NJPP) argues that it ought to be part of any comprehensive approach to improving state finances. In observing that the
Late week few in Minnesota were surprised to learn of the state's forecasted $373 million shortfall for the FY08-09 biennium. Policymakers must find a way to fill this gap by the end of the 2009 fiscal year. The Minnesota Budget Project says, "These forecast results are further evidence that Minnesota's experiment in this decade to respond to fiscal troubles with budget gimmicks, short-term fixes and reduced investments in the state's physical and human capital has failed. The promised benefits -- a stronger economy and continued high quality of life -- have not materialized." In a November 30 press release Governor Tim Pawlenty said, "that state government should hold the line on spending and not raise taxes on Minnesotans." The Governor's release says that he "will propose tax cuts for individuals" that would be paid for by eliminating corporate tax loopholes which relate to how business income is defined.
It's the start of the summer driving season, and gas taxes are back in the news again across the nation. Gas taxes have long been the main method used by states to fund their transportation system, but recent high gas prices have made gas taxes a hot political issue. Since most states' gas taxes are fixed dollar values, inflation decreases their value every year, forcing lawmakers to pass new laws raising the gas tax every few years. However, this time around, many states just can't seem to find the political will to do so. Nebraska's governor Heineman is threatening to veto the paltry 1.8 cents per gallon gas tax increase passed by the state's legislature. Minnesota's Governor Pawlenty waited less than twenty-four hours to veto an equally modest five cent per gallon gas tax increase. Even worse, some lawmakers in Connecticut and Minnesota have proposed completely suspending their state's gas taxes, for the summer and for one year respectively. While in the short term these gas tax gimmicks may pay political dividends, in the not-so-long term these states cannot afford to play politics with transportation funding.
The prospects for passage of new property tax reduction legislation are looking dim in Florida, as the House and Senate must now reach a compromise between two competing measures. The House version compensates for the revenue lost from lower property taxes by raising the sales tax by as much as 2.5 cents. This tax swap idea is proving quite controversial, due to the regressive nature of the sales tax. Senate Republican leader Daniel Webster lead the charge against the House proposal, saying: "The sales tax is a regressive tax. And the more you raise it, the more regressive it becomes. The poor are going to get poorer, and the rich are going to get richer." The Senate proposal features a smaller property tax reduction, with no tax increase to offset the revenue loss.
One idea not under consideration in
