Gov. Dayton is wrong, the tax bill is not a giveaway for corporations
When Governor Mark Dayton vetoed the tax bill last week, one of the reasons he gave was that “This bill is cake to the rich and big corporations and crumbs to people who need it.” Actually looking at the bill, however, it is hard to see how he has come to this conclusion.
What does the bill actually do for corporations?
The bill reduces the corporate income tax rate from 9.8 percent to 9.65 immediately, then to 9.1 percent in 2020. Minnesota would go from having the third highest rate of corporate income tax in the United States to having the sixth highest.
It also repeals the corporate alternative minimum tax (AMT). Minnesota is one of only eight states to have this. It does little except add unnecessary complexity to the tax code. When the Department of Revenue last published a corporate income tax bulletin about a decade ago, it estimated that the corporate AMT brought in just 1 percent of state corporate income tax revenue. Indeed, this sensible measure was originally proposed by a DFL Senator, Ann Rest.
The bill also conforms Minnesota’s tax code to the increased Section 179 federal expensing amounts. This allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year from their gross income, reducing their tax liability. It incentivizes businesses to buy equipment and invest. This raises capital per worker, worker productivity, and wages.
In truth, these are steps in the right direction, but only small ones. They are certainly not the handouts to corporate fat cats Gov. Dayton claims they are. This is empty, economically illiterate class warfare rhetoric and the state would be better off without such antics.
Who pays corporate tax anyway?
There is a final point to make here. Just because it is called the ‘corporate’ income tax that doesn’t mean that corporations pay it. After all, corporations don’t really exist, they are just contractual relationships between individuals. It is these individuals who bear the burden of the so-called ‘corporate’ tax. The workers bear it in the shape of lower wages, and the owners, including millions of middle class Americans with 401ks, see it in the lower returns on their investments.
When you decide to bash the rich, more often than not you end up hammering average folks.
John Phelan is an economist at the Center of the American Experiment.