Are you ready for a tax increase?
Just one month after the start of the 2010 legislative session, Sen. Tom Bakk, DFL-Cook, chairman of the Senate Tax Committee, proposed a whopping new tax increase -- a sales tax on all clothing.
The proposed extension of the state's sales tax to clothing would increase tax revenues by $257 million in the first year. Sen. Bakk's proposed tax increase on clothing comes less than a year after his failed attempt to raise taxes by more than $2 billion, which included an across-the-board income tax increase.
The proposal to extend the sales tax to clothing may be the first major tax increase proposal of this session, but I am sure that it won't be the last.
The penchant to raise taxes runs strong among DFL lawmakers and, despite GOP Gov. Tim Pawlenty's opposition to new taxes, there will likely be dozens of tax increase proposals flooding lawmakers' desks in the coming months.
These tax increase bills follow in the wake of two major tax increases. The first was in February 2008 with the override of Pawlenty's veto of a $6.6 billion transportation funding package. That bill increased gas taxes, sales taxes, excise taxes and vehicle registration taxes.
The second tax increase was an increase in the state's sales tax that brings in more than $200 million per year. This was a constitutionally dedicated tax passed by voters in November 2008. The money collected can't be used to solve the state's current budget shortfall.
Let's not forget another huge tax increase, property taxes. Local property taxes have escalated on average by more than 10 percent over the last two years.
Yet with hundreds of millions in new tax revenue each year, the liberals still continue to cry that Minnesotans aren't sacrificing enough at the altar of government largess. With a current budget shortfall of $1 billion and a looming projected budget shortfall of $5.8 billion facing legislators next year, many legislators will claim the budget can't be balanced without a tax increase.
The reality is ... there already is a massive tax increase coming.
Under current tax law, state income tax collections are projected to rise by more than $2 billion by the end of fiscal year 2013, according to the March budget forecast figures from the Minnesota Management and Budget office. Sales tax revenues are forecast to increase by more than $700 million and total tax collections are slated to increase by more than $3 billion, the figures showed.
How's that for a tax increase?
Just as revenues have fallen sharply over the last two years, tax collections will likely rebound dramatically in the next three years. These sharp increases are due to Minnesota's very progressive tax rates. As more people return to work and consumer purchases increase, state tax collections will rapidly rise. As home values rebound, so will property tax values and local government tax revenues.
Minnesotans don't need more job-killing tax increases. We need private-sector employment growth that will automatically lead to revenue growth. More people paying taxes is the answer to our budget issues, not fewer people paying more in taxes. Currently, the top 1 percent of wage earners pays 25 percent of the total income tax.
In addition to private-sector job growth that could be stimulated by a tax cut, lawmakers must slow the growth rate of state spending. The next biennial budget is forecasted to grow by more than $7 billion, which is a 19 percent increase in spending.
Without any spending reductions, tax revenues would need to increase by $6 billion to balance the budget by the end of fiscal year 2013. State tax revenues have increased by almost $1 billion per year due to the imposition of new taxes in the last two years. Without lawmakers voting to raise a single new tax, general tax revenue is projected to increase by $3 billion.
Do Minnesotans really need an additional tax increase?
Phil Krinkie is a former Republican state representative from Lino Lakes and president of the Taxpayers League of Minnesota. The eight-term lawmaker chaired the House Tax Committee and two other House panels.