In my radio segment with AM 950's Mark Heaney, we covered a couple aspects of the Minnesota state budget situation. In this post, let's look a some of my points about Gov. Pawlenty's proposed corporate tax cuts. As I've said before, I think it's too simplistic to say he's just sucking up to his rich business constituency.
Let's be plain. I don't know or care what the governor plans for his next career move, but it's hard not to read a political dimension into his call for a cut in the corporate franchise (income) tax.
He needs to enhance his national image as a tax cutter and tough budget balancer. The business tax is as good as any place to start. Here's why.
- Business tax cuts play better nationally. Of all our taxes, the corporate income tax touches farthest out-state. Nearly half is paid by companies doing business in Minnesota, but not based here.
- Cutting business taxes looks like a pro-jobs move. The brainwashed masses think business tax cuts will induce companies to create jobs in Minnesota. In this climate, especially, that's hogwash. But it certainly won't hurt our prospects with businesses when they do start to invest again.
- The corporate tax rate is overrated, but closely watched. Minnesota's rate is third highest after Pennsylvania and D.C. But it represents only about one-third of the taxes Minnesota businesses pay, and when you look at business taxes overall versus business profits, we rank somewhere in the middle among the states. All the same, Pawlenty will earn brownie points for lowering "the third highest corporate tax rate in the world."
- Cutting business taxes is not as good for the "rich" as it sounds. Business taxes are actually regressive — falling disproportionately on average taxpayers — because they get passed on to consumers in the form of higher prices, depressed wages and reduced benefits. The state of Minnesota estimates that about half of business taxes get passed on this way to consumers and employees. Smart opponents may make noise about "paying for art in boardrooms," but they will also know this is not nearly as harmful as cutting the personal income tax rate for the wealthy.
- A $287-million cut might be a bargaining chip. It represents about 2 percent of the annual budget, which is still significant in a time of shortfall, but as noted above, there's something in it for Pawlenty, and for legislators who want to make the tax system less regressive.
One last point, the governor's tax commission hasn't yet issued its report. While I have to believe Pawlenty's proposal reflects what they will recommend, they have to be coming out with more than cutting the corporate income tax rate. That means this whole issue will remain in play.
Next post, I'll reprise my radio comments on the tobacco bonds.
