Tax Reform Coming to Minnesota

Minnesota Governor Mark Dayton is proposing a comprehensive tax reform for individuals and small businesses in Minnesota.  The plan calls for the following:

-          Provide a $500 rebate for home owners

-          Increase the tax rate for top 2 percent earners to 9.85 percent

-          Reduce the sales tax rate from 6.875 percent to 5.5 percent

-          Help main street businesses compete with online retailers

-          Let small businesses claim an upfront tax exemption on capital purchases

-          Cut the corporate tax rate by 14 percent and eliminate corporate loopholes for some companies 

The state currently has a corporate tax rate of 9.8 percent.  A reduction in this rate from 9.8 percent to 8.4 percent is viewed as a positive for businesses.

According to the Tax Foundation if implemented the 9.85 percent on top earners making over $150,000 it would push Minnesota’s top rate to the 4^th highest in the country.  They believe that this will have negative impact on small businesses and economic growth.  They believe that “not only do they reduce the returns to education and the incentive to build human capital, but they also “undermine the factors that contribute most to economic growth: investment, risk-taking, entrepreneurship, and productivity.”

The Tax Foundationalso discovered that the Governor plans to expand the tax base by taxing business inputs.  “If enacted, this would cause economic distortions by favoring different production processes based on the number of intermediate transactions. If inputs are not exempted, taxes are paid each time the product changes during production, compounding and leading to a highly variable effective tax rate.”

The committee report recommends that government agencies and contractors should not use their equipment.  U.S. network providers should avoid using their equipment.  Private businesses should reconsider doing business with these companies.

Sources:
Minnesota Governor Tax Proposal
The Detailed Tax Plan
Tax Foundation

By Owen Daniels