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Instead of Higher Taxes on the Wealthy.....

Category: Economy
Posted: 11/12/12 00:40

by Dave Mindeman

This may sound a bit strange coming from a "liberal extremist" like me, but I am not in a big hurry to increase Minnesota state taxes on the wealthy.

Don't get me wrong, the Federal Taxes, the Bush Tax Cuts, are a different deal. The wealthy portion of that deal needs to end and the middle class portion to continue.

But for Minnesota, I would prefer a fuller examination of the overall tax structure.

We do have a high tax bracket for higher incomes. It has been a Republican talking point for decades. I still don't believe that raising those tax rates will somehow hurt the state economy. And as I have said many times, the myth of wealthy job creators is still just a myth.

But there are other ways to increase revenues from wealthier tax brackets than raising the current rates.

I think we should overhaul our sales tax system. Keep the clothing and food exemptions, but broaden the tax base. That means several things....

1) Collect internet sales taxes. That should have happened long ago. It is an unfair advantage for internet commerce over brick and mortar companies.

2) Eliminate exceptions. Keep the exemption on food and clothing but tax the incidental exceptions that have creeped into the code via special interest groups....like feminine hygiene products.

3) Broaden sales tax to include services. This may be a way to collect more taxes from the wealthy. For instance: I pay sales tax on a purchase of TurboTax for doing my income tax. Shouldn't we be taxing accountants and tax attorneys who provide services for high incomes to beat paying tax?

Another means of collecting taxes from higher incomes would be to cap deductions. Put a deduction limit on home mortgage interest deductions. Cap miscellaneous deductions. Tax brokerage services. Cap financial service deductions. Things like that.

And if we broaden the sales tax base, then lets lower the percentage. Instead of 6.5% on a limited base; move it to 5.5% on a broader base. We can still increase revenue. And, if we are so inclined, make the sales tax a two tier tax. With a higher rate on luxury items like jewelry and recreational vehicles.

Some of these possibilities would bring in more revenue from higher incomes without resorting to an income tax increase. That would complicate GOP talking points, but still meet the need for increased revenues.

Do some of that and we can get serious about fixing budgets.
comments (4) permalink
11/13/12 13:15
ad in a financial transaction tax and this is amazing!
 
11/13/12 10:36
Hi Kim - First... feminine hygiene products are not taxed because of the manufacturer's lobbyists. (not a request by women). As for the 47% not paying, that is income tax. Sales tax is a uniquely middle class tax and it is not going to go away. So, I still believe broadening it to services is a fairer way to go. As for luxury tax issues, I agree that it might cause some competitive issues with border states and thus should be a Fed issue. But we have the same argument about gas taxes as well. It should at least be discussed.
I disagree about this being a "burden" to small business. The burden is the complexity. I operated a sports hobby business for a brief time and since everything sold was taxable, it was a simple calculation as to what I needed to send to the state. Bar codes simplify this a lot and if services don't have a host of exemptions, that should be simple as well. If a small business has to hire an accountant anyway, this is not an undue burden.
Yes, income tax is probably a fairer tax...but we have argued about the MN tax system for years. I am just saying that we can approach this from more aspects and solve our problem....rather than just talk in circles.
 
Kmillman
11/13/12 09:36
Dave, you're right about examining the entire tax system. However, there are a few things that have unintended consequences that legislators need to avoid. And, Dave, Dave, Dave - female hygiene products -special interest groups? Sorry to break it to all you men out there, but female anything is not a special interest group - we are over half the population.

First, as a person who was in the lower part of the 47% most of my working years, I can say that all people should be paying some state and federal taxes.

In my younger years I did my own taxes and subsidized my income by doing other people's taxes, individual, corporate and partnerships.
When it came to doing my own taxes I never thought it was fair that I wasn't being taxed at least a very modest amount to pay for government services that we all use. In the midst of the Reagan presidency when he was talking about everybody getting out of the wagon and pulling, I came to the conclusion that the Republican's blame game on the poor could also be eliminated by the poor paying at least some state and federal taxes. They would no longer have a scapegoat of freeloaders and welfare queens to point to if everybody could say the poor was indeed paying their fair share. Even a percentage of one percent would take the argument away.

The idea of luxury taxes are fine if you didn't have the unintended consequences of a state tax that is not remotely competitive with other states and the probable loss of business and total sales tax revenue. We'd be giving business to Wisconsin, Iowa and the Dakotas if we tried that as a lone state. That kind of thing has to be a national tax policy. However, even then, we have the richest traveling to other countries to purchase their goods. So the idea is good, it is just not feasible as a state level revenue solution.

I also disagree about the sales tax issue. I hate ordering stuff online. First, you never know what you're going to get. Second, THERE ARE ENORMOUS SHIPPING CHARGES! Those shipping charges far outweigh the sales tax issues. This is an issue that the big corporations are bamboozling the public about. The stores hate carrying inventory because it ties up cash. They want you to buy things online. The big stores just want to crush the competition without having to carry inventory.

Unless you live in a cave and never venture out to a store, you cannot help noticing that stores are not carrying inventory and "sales associates" are encouraging people to purchase items online when an item cannot be found in the store. I've noticed that the items cannot be found because they are now intentionally absent.

Another down fall of the sales tax is that it hits small businesses very hard. In the 1980s many in the construction services industry dropped a number of domestic services because of the expansion of sales tax. It wasn't that it was too high, or that they couldn't pay it, it was just something that added another time consuming process to business. I was one of them that intentionally dropped part of my business because as a sole proprietor, I literally did not have the time or the man power to accommodate yet another burden. I also was not excited about the government having yet another reason to come and weed my garden so to speak.

Remember these small businesses have employees, but in many instances, the management, marketing, advertising design, accounting, P&C and health insurance consultants, sales, and bookkeeping are all a one man show. What seems simple to many is quite the opposite in reality.

I will say that legal services certainly could be taxed. However, it is still a fine balance with some potential unintended consequences. The overall cost of doing business in a state has to remain competitive. Our overall competitiveness has to be factored in the equation. If legal services are going to be taxed, however, the way to increase the revenue substantially, while ensuring universal access to legal services, is to start licensing paralegals for limited legal practices. Legalize and regulate Marijuana. And find other new sources of revenue.

But in the end the fairest way to ensure a proper state revenue stream is to raise the income taxes. Businesses don't fail from a higher income tax because they always have an opportunity to reinvest in their businesses. Higher income people can afford to pay a lot more and lower income people can afford to pay a little more. The lowest income people should be paying a token amount.
 
11/12/12 08:47
I'm with you on everything except the female hygiene products.

Women get 70 cents on the dollar in compensation, we pay more in health care related costs - which this is. I'm sick of gender inequalities like this.

How about we tax dontbuy and other boner pills, p** , and a very small tax on certain financial transactions as well, which could be constructed as a very progressive taxation instead.
 

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