Minneapolis Star-Tribune
Wayne Cox (CTJ Board President): Minnesota's corporate tax? Not a problem
Calculate it honestly, and it isn't high. Yet some wish to manipulate that fact.
By WAYNE COX
April 26, 2010 - 6:48 PM
The Twin Cities needs to get better at producing jobs, mostly by taxing business less. That was the call to arms issued recently by the Itasca Project, a group of CEOs with a track record of sound civic guidance. It invited others to pitch in.
I have a solution, a guaranteed way to make Minnesota one of the 15 states with the lowest amount of taxes on business and to reduce corporate income tax payments to a third of the 9.8 percent corporate tax rate. It would ensure that jobs performance in Minnesota leads the nation, and it would make Minnesota's venture capital investment 10 times greater than Wisconsin's.
The secret? Do nothing.
Ernst & Young and an association of 600 corporate tax attorneys decided a few years ago to tally up business taxes honestly. In each state, they add up all state and local taxes imposed on business, including the corporate income tax and the extent to which the individual income tax falls on business owners. They measure all those taxes paid as a portion of private business activity in the state. Then they rank each state.
The association, called the Council on State Taxation (COST), found last month that Minnesota had the 15th-lowest amount of business taxes paid as a portion of business activity, about the same as the year before.
But isn't Minnesota's corporate tax rate at 9.8 percent the second-highest in the nation, or, as Gov. Tim Pawlenty likes to say, "third-highest in the world"? COST, in one of its earlier findings, said that, because of various deductions, Minnesota businesses actually pay on average only about 30 cents on the dollar of that 9.8 percent rate. It's like going into Macy's and getting a little sticker shock at the manufacturer's suggested retail price until you notice the sign over the rack that says "70 percent off the marked price."
Didn't Minnesota just lose more jobs last month? It did. But the federal Bureau of Labor Statistics also found that Minnesota and the Twin Cities each led the nation in decline in unemployment rate over the last year.
Minnesota has 10 times more venture capital than Wisconsin? Exactly, says Price Waterhouse, the bible for these figures.
The Itasca Project said Minnesota has an "uncompetitive tax structure." It doesn't. It wouldn't have succeeded so well over the years if it did.
But sadly, the Itasca Project, a group that does much good, has elected to throw its lot in with those who run down the street yelling, "Don't buy at Macy's. Their manufacturer's suggested retail prices are horrible."
I have often wondered how much better the state's jobs performance might have been in recent years had it had a governor and a business lobby a little less obsessed with badmouthing Minnesota.
So how does the project make its argument? Same as always -- by referencing the usual suspect suspects. The antitax lobby has set up a number of groups such as the Tax Foundation and the Small Business Survival Council that exist almost solely to produce "rankings" to punish states that use a corporate income tax or an individual income tax. In these rankings, South Dakota, with no corporate income or individual income tax, is almost always No. 1. Minnesota is always near the bottom.
This is a longstanding con. I reviewed one of these "rankings" 25 years ago in a CitiBusiness article. Then, as now, South Dakota was No. 1 and Minnesota was near the bottom. I found that high rankings were not associated with high job growth. I wrote: "Welcome to the Alice in Wonderland world of state business climate rankings, where the states that get the rankings seldom get the jobs."
Twenty-five years later, South Dakota is still No. 1, and it isn't much closer to Minnesota economically than it ever was.
It's all there on Minnesota's state website. Just Google "compare Minnesota." Use the interactive feature to see how Minnesota's business taxes are lower than Florida's. Learn all the things about Minnesota's great business climate that Pawlenty and the Itasca Project apparently don't want you to know.
The business leaders are correct that Minnesota needs to deal with a perception that Minnesota taxes businesses highly. They need to become part of the solution instead of part of the problem. And by closing deductions and credits, Minnesota could have a lower corporate income tax rate that mirrored more closely its actual collected rate.
What should the Itasca Project do? Easy. Acknowledge that actual taxes aren't the underlying problem. Then work a whole lot harder to find what really is depressing Minnesota's jobs and wages -- because something is.
Wayne Cox, of St. Paul, is executive director of Minnesota Citizens for Tax Justice.