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Sense and nonsense about Minnesota’s taxes

Yesterday, I wrote about last week’s news that state government revenue was $489 million higher in April than had been projected. Coming on top of near record high state government tax revenues and a projected surplus for the coming biennium of $1 billion, it is – or ought to be – a final nail in the coffin of proposed tax hikes.

If you think the economy is going down, why do you want to put taxes up? 

This, perhaps, is why those pushing these hikes had to downplay the news. House Speaker Melissa Hortman said “There’s very troubling signs on the horizon. Minnesota’s economy is very dependent on agriculture commodities. And they have no certainty in their future because of the trade tensions.”

But this makes no sense. If Rep. Hortman really is so worried about the prospects for our economy, why does she want to hit it with a $12 billion tax hike? There is no school of economic thought that says that raising taxes is how you prevent an economic contraction.

Tax rates down, tax revenues up – Maybe there’s a lesson there?

To recap, this result was driven by personal and corporate income tax receipts. Individual income taxes came in $388 million above forecast and corporate taxes were $133 million over it. The Star Tribune reported that

The upbeat April tax receipts could be related to the ongoing effects of the Republican-backed federal tax cuts in 2017, [Myron] Frans [Governor Walz’s commissioner of Minnesota Management and Budget and one of his closest advisers] said. 

Remember that those federal tax cuts reduced personal and corporate income tax rates. But personal and corporate tax revenues have increased: so far this year they are $573 million higher than anticipated. Commissioner Frans is not alone in thinking that the lower rates might just have had something to do with the higher revenues. Perhaps Minnesota’s politicians should take this on board before hiking the state’s taxes?

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

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