Dear Legislator:
On behalf of the National Taxpayers Union’s 7,000 Minnesota members, I urge you to oppose Governor Dayton’s budget proposal that would unfairly burden Minnesotans with $2.1 billion in new taxes, including a personal income tax hike on those making at least $150,000 per year, a cigarette tax increase aimed squarely at the state’s lower and middle class residents, and a reliance on passage of a new tax on online goods that would hurt both consumers and local Internet-based businesses. While the $1.1 billion deficit poses a serious challenge, the effects of this tax scheme could be catastrophic for the state, especially as health care costs skyrocket and Americans are forced to pay higher federal taxes.
As NTU warned the Governor in January, higher taxes on income will endanger economic growth and job creation in Minnesota. With the current top income tax rate of 7.85 percent, Minnesota already has one of the highest rates in the region. By raising this rate to 9.85 percent on incomes of $150,000 or more, Minnesota would struggle to attract new businesses and high-income earners. Lawmakers should follow the lead of Midwest states Wisconsin and Kansas, where governors are seeking to significantly slash state income taxes to attract economic growth and jobs.
Furthermore, since the poor are more likely to smoke, the Governor’s proposed 59 percent tobacco tax increase would further harm the Minnesotans most adversely affected by the continued economic uncertainty. According 2011 figures from the Center for Disease Control, 34 percent of adults in Minnesota who earn less than $15,000 per year are smokers. As Governor Dayton stated in 2010, “You raise the price of a pack of cigarettes $1.50…that’s money out of the pockets of working people and poorer people, and that means kids don’t have as much to eat or don’t have the same quality of food.” While tobacco taxes are often targeted as a way to close budget gaps, most tobacco tax hikes fail to produce the expected revenue. New Jersey reported a $52 million shortfall in tobacco tax revenues after boosting its cigarette tax by 17.5 cents in 2006. Other states, including Arkansas, Maryland, Mississippi, and Rhode Island have also reported gaps in revenue collections following tobacco tax hikes.
Like tobacco hikes, affiliate nexus internet tax schemes also fail to raise desired revenues, as evidenced by results in Colorado, North Carolina, and New York. Even worse, Rhode Island actually lost revenues following the enactment of the tax. Any reliance on an online sales tax to meet revenue goals would be a costly mistake.
By proposing a complicated $2.1 billion tax hike, Governor Dayton has put Minnesota’s recent and future economic growth in jeopardy. Our members hope that you will reject this dangerous proposal and instead seek a plan that avoids higher taxes.
Sincerely,
Lee SchalkState Government Affairs Manager