What should lawmakers consider when rewriting tax policy? Five experts give their perspectives
This article appeared April 8, 2018 in the Pioneer Press.
ST. PAUL — When it comes to taxes, almost everyone has an opinion on who should pay more and who should get a cut.
As the Minnesota Legislature prepares to debate the best way to align the state’s tax code with recent federal changes in the Tax Cuts and Jobs Act, the Pioneer Press asked five experts what they hoped lawmakers would prioritize.
Here’s summaries of their responses:
The complexity of conforming Minnesota’s tax policy with the recent federal overhaul isn’t lost on Elizabeth Bystrom. The White Bear Lake CPA knows that no matter what the Legislature does, it will likely complicate her professional life, at least in the short term.
However, Bystrom sees a few ways the Legislature could make it easier on everyone.
The first is to align some of the more complicated pieces of Minnesota’s tax code, such as business taxes, as closely as possible with the federal changes. Failing to do so will make filing for business owners much more costly and time-consuming.
The second is to pass a conformity bill before the end of the regular legislative session. That way, tax experts can get a jump-start on preparing for the next tax year.
“The only thing I really want them to do is make a decision,” Bystrom said. “The longer (the debate) goes on, the more uncertainty there is.”
The business owner
Making Minnesota’s tax code as straightforward as possible is also important for Ben Granley. The president of Werner Electric in Cottage Grove is also a member of the Minnesota Chamber of Commerce board of directors.
“Anything that reduces complexity is a huge win,” said Granley. “The simpler the process is, the more time I have for my customers.”
Granley added that lawmakers should avoid increasing taxes as much as possible, saying, “It shouldn’t penalize folks for federal changes.”
One big thing Granley would like Minnesota to adopt is the federal changes on deductions for capital expenses. The new law allows businesses to take those deductions all at once rather than spreading them out over time.
That will encourage businesses to buy from other Minnesota companies, Granley said. Not conforming with the change would make filing business taxes more complicated.
The federal tax changes have been criticized for giving most of the benefits to businesses and the wealthy. Burnsville Mayor Elizabeth Kautz wants to make sure whatever changes Minnesota makes do not eliminate the modest gains most of her residents will experience.
Burnsville has an average household income of about $70,000 and the city is home to 2,500 businesses, most of which are small firms. Kautz says families and businesses like those in Burnsville should be on state lawmakers’ minds as they craft a conformity bill.
“Don’t make it any more burdensome for them,” Kautz said.
The mayor is also concerned about a new $10,000 limit on taxpayers’ ability to deduct state and local taxes. Kautz fears the new threshold could mean some residents will be less likely in the future to support requests to increase local property taxes.
Nan Madden, executive director of the research and advocacy group the Minnesota Budget Project, agrees with the critique that the federal tax changes did little to help working families.
“It isn’t really a great deal for everyday folks,” Madden said.
But state leaders have a chance to improve upon the federal changes if they are cautious with how they conform. One way to help middle- and lower-income residents is to find a way to keep family size in the state tax formula.
The federal bill does away with individual and dependent exemptions that knock a chunk off of taxable income. Those are replaced with a larger standard deduction and a modified child tax credit, but that may not be enough for some families to avoid a tax hike.
Lawmakers should look for the best way to continue to consider how many people are living under one roof when calculating state taxes.
Madden also is hopeful the conformity debate will be transparent and done through the legislative committee process. Too often, complex policy and spending changes are debated behind closed doors during final, end-of-session negotiations between party leaders.
“Hopefully, there will be plenty of opportunities for people who are interested to weigh in and understand the pros and cons on the table,” Madden said.
For those who see Minnesota as a high-tax state, tax conformity is the perfect way to reduce rates to ensure residents and businesses don’t end up paying more.
John Phelan, an economist with the conservative Center of the American Experiment, said lawmakers need to seriously consider across-the-board reductions in individual and business taxes. Doing so would still leave Minnesota with higher tax rates compared with many states.
But it would also help address changes to how taxable income is calculated under the federal changes. Phelan says it wouldn’t be a tax reduction as much as it would be a way to avoid higher rates because of conformity.
“One way to look at the federal bill is as an opportunity to try to reset where we are,” he said.
John Phelan is an economist at Center of the American Experiment.