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Raise a glass to lower business taxes

Policymakers tax things to get less of those things. Think of cigarettes, as I wrote last week: tax them more and people smoke less. But, when it comes to income taxes, this logic all too often goes out the window. Instead, the assumption becomes that high tax rates on labor do not discourage taxable labor.

The same is also true of corporate taxes. Policymakers have saddled Minnesota with the third rate of corporate income tax in the US, 9.8%. Only Iowa and Pennsylvania have higher rates. Coupled with a hitherto high federal rate of 35%, this has made Minnesota one of the most expensive places to do business in the developed world.

But, on some level, our policymakers seem to recognize this. According to the Minnesota Craft Brewers Guild, there are about 150 small breweries in our state. Beaver Island Brewing Company in St. Cloud has increased its output by 178% in two years. And as Beaver Island’s co-owner Nick Barth told WJON, Minnesota waives the state excise tax for brewers his size because he says the state recognizes craft brewers are good job creators. Like manufacturing, another relative success story for the state, lower taxes allow small breweries to thrive.

Beaver Island presents a good case study of the effects of business tax cuts on economic growth. The federal tax bill passed in December included the “Craft Beverage Modernization and Tax Reform Act” which halves the federal excise tax from $7 a barrel to $3.50 a barrel on the first 60,000 barrels a year. According to Barth, this year Beaver Island will pay about $17,000 less in taxes under the new law. “When asked by our employees what we’re going to do with it we said we’re going to put it right back into you guys”, Barth explains, “So we’re going to invest in some new equipment and some new techniques.”

We can all drink to that. But you have to wonder why, if Minnesota’s policymakers recognize the benefits for growth from lower tax rates on craft breweries, they don’t apply this logic across our state’s economy?

John Phelan is an economist at the Center of the American Experiment. 

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