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I’ve spent the last couple of days over at the state capitol testifying in front of the House tax committee in opposition to some bad bills. On Tuesday, it was Rep. Sandell’s plan to give Minnesota the second highest marginal rate of capital gains taxation in the United States. Yesterday, it was Rep. Gomez‘ proposal to raise Minnesota’s estate tax.
During these hearings, both bills were vigorously supported by Rep. Lesch. He gave an historically inaccurate account of how the U.S. had a high tax Golden Age in the wake of World War Two and argued that having such comparatively high rates of capital gains and estate taxation wouldn’t disadvantage Minnesota. Indeed, he claimed, the state might benefit from this higher taxation.
But, yesterday, Rep. Lesch proposed a bill himself, HF 2759. Among other things, it would require wineries shipping to Minnesota customers direct to pay all liquor related taxes. Currently, the wine excise tax does not apply to direct shipped wine. As a result, Minnesota wine wholesalers effectively face a higher excise tax than out-of-state wineries, and this, Rep. Lesch argued, places them at a ruinous competitive disadvantage.
Rep. Lesch made this argument the day after claiming that imposing the highest capital gains tax in the U.S. would not disadvantage the state and about 20 minutes before arguing that a higher estate tax wouldn’t either. Perhaps there is something magical about wine taxes?
Or, more likely, Rep. Lesch is making the mistake legislators frequently do. He thinks that, while these taxes act as incentives or disincentives, those taxes do not. What makes these taxes and those taxes different in their assumed effects is never spelled out. When Rep. Davids, the bill’s co-author, pointed this inconsistency out, Rep. Lesch reacted with irritation rather than contemplation. Good questions often have that effect.
Rep. Lesch isn’t the only victim of this confusion. On Tuesday, Rep. Sandell was asked why he had exempted farms from his capital gains tax hike. He explained that he had done so because farms weren’t mobile. But what sense does it make to put the highest tax rate on the wealth that is most able to move?
As I testified yesterday,
“Incentives do make a difference”. So said our former governor, Mark Dayton, when discussing what state governments could do to attract investment. You raise taxes on cigarettes because you think it will incentiveize people to stop smoking. Look at wine taxes, as we’ve just discussed. You have to apply that logic consistently, even in the case of the estate tax.
You can add capital gains taxes to that list. And, if you listen to Rep. Lesch, excise taxes too.
John Phelan is an economist at the Center of the American Experiment.