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Progressive Politics in Minnesota, the Nation, and the World

Business Will Do Fine With The Democrats In Charge

Category: Economy
Posted: 11/26/12 19:10, Edited: 11/28/12 16:10

by Dave Mindeman

The business community worked hard to get Republicans elected during the last election. They spent a good deal of money on the project but it failed miserably.

Now they say they are nervous about DFL Legislative control.

As usual, business gets it wrong when it comes to which Party is best for business. And, frankly, most of the perception problem stems from the fact that business always does better when government policies are promoted which favor their clientele and customers...not themselves.

Republicans and business generally collaborate on the superficial. They want property tax breaks....they want to limit taxes on the wealthy....they want tax incentives. All of that can free up cash and maybe increase the bottom line to a temporary extent....but they are not really pro-growth policies.

The dynamics of the economic engine are heavily fueled by demand. Business can create demand to some degree but unless there is a thriving middle class that has the means to purchase the goods produced, the economy goes nowhere.

As you can probably tell from the Thanksgiving shopping frenzy, business can create demand by focusing on lowering price points and generating publicity....all of which costs them profits. But over the long term, generating sales that will keep the business afloat throughout the year means to produce goods that are needed by the middle class and lower middle class. Sales and services that are consistent and fairly priced.

Giving businesses property tax breaks and other tax cuts may be a short term help but the middle class will have to make up the difference. Extra taxes paid by them will take away purchasing power and eventually affect demand.

When Democrats are in power, business may not get the preferential treatment they are used to by the GOP, but the broader economy usually does better. The criticisms of the Obama economy have been largely unjustified. Comparing Obama's 4 years to the previous 4 years in an economic sense is no comparison at all. Although growth has been slow, it has still been growing. One only needs to look at Europe to see what might have happened under heavy austerity programs.

Governor Dayton and the Minnesota legislature aren't looking to punish the business community. They are as much pro-growth as any GOP hard liner. Although the last legislature talked of slowing spending and "fixing" the deficit, it is clear that what they did was a series of bandaids which will keep things in check for a brief time...only until school shifts and tobacco interest comes due.

Structural fixes are key to the Minnesota budget and new revenue is imperative. The Governor and the legislature are not just going to raise taxes as a solution to everything, but they will use that tool if needed.

That is the real difference in the Democratic vs Republican approach. The Democrats will put everything on the table and make things work for the State as a whole, not just one aspect.

The business community doesn't need to be fearful. It would be wiser to join this growth opportunity.
comments (2) permalink
kmillman
11/28/12 11:19
Yes, you don't want to hurt supply or demand, but there are ways to find the appropriate equilibrium in tax and public policy. That equilibrium is easily found through income taxes.

Democrats really need to start understanding tax policy and quit allowing the Republicans to talk about taxes as if all taxes are the same and they all have the same effect on individuals and businesses because they don?t. And Democrats, yes, everybody should pay something in every category. If wages are so low that you think a particular income demographic cannot afford to pay a tax, the minimum wage increase is the way to remedy that issue. There is no need to maintain a tax code to subsidize slave wages. Democrats should be the ones touting tax fairness, but that tax fairness works both ways in a progressive system.

In the case of income taxes for the consumer, the revenue cost will not going up beyond what their income level can provide since the tax increases and decreases with their income levels. For business, they are not paying taxes before profit. As a matter of good policy, a higher income tax ordinarily results in business and the wealthy finding ways to reduce income, and thus taxes, through investments in equipment, marketing and personnel. In turn, those investments result in economic growth. Yes, there is the law of diminishing returns, but we are a long way away from that threshold.

Sales are a more problematic tax that can in some instances hurt demand and small business. And yes, it might be easy to have a hobby business where all the sales tax issues are straight forward, but if you have a business where the things you produce are not straightforward within the tax policy it is an entirely different ball game. When you have to hire a lawyer and an accountant to determine how and who to tax depending on the types of products or services offered, it becomes a very high burden for small business. I can attest to the fact that within the businesses I have either owned or worked in, sales tax has been an issue where I have spent a lot of time both with accountants, attorneys and the state revenue department. At times there are very few clear answers from even the revenue department. That type of complexity should never happen in our tax policy.

In addition, within the sales tax policy some items may have a reduced demand and some items would have no effect, but would place a serious burden on the poor. For example, a national medical device tax is one that can withstand scrutiny because people don?t turn down life saving devices because there is a small tax associated with the purchase. In relation to the cost of the purchase and the benefit derived, the tax is de minimis. However, the same type of tax on a state level would induce purchases from other states and Minnesota would lose revenue. So the sales tax is hard to find the perfect equilibrium to avoid revenue losses and harsh economic burdens.

Property tax is probably one of the most universally harsh revenue devices and especially hurts business because there is no way to reduce or mitigate the cost. Higher property taxes can also work as a drag on the community when businesses and individuals who make investments in property improvements are only rewarded by higher property taxes. However, property tax can be used for some revenue and some public policy manipulation. There is no reason for Minnesota not to have a higher property tax on McMansions, 2nd homes, and mega churches. Sprawling, excessive resource sucking properties that serve as nothing more than demonstrations of overabundance and opulence should be taxed at a higher rate and should be viewed differently than the average individuals or businesses for the purposes of taxation. This is especially true for the areas that endanger our natural resources or religious organization properties that remove large properties from the tax roles for no other reason than to serve themselves.

What Democrats need to start emphasizing in the tax policy discussions is that the infrastructure investments, in Minnesota especially, have always helped fuel our economic development. Compare us to the rest of the country. For example, whenever other states have so much as a few snowflakes highways are shut down and businesses are forced to shut down because the states have no ability to maintain their roads under any conditions. We do because we all pay for it and we all derive a large benefit from it.

The Chamber of Commerce and the political leaders would be much better off by selling the state based on the potential profitability of doing business in the state as compared to other states, instead being one note wonders about taxes in the most generic sense. They would be much better off concentrating ensuring revenues for specific infrastructure, education and research and development that ensure economic growth.

 
11/27/12 10:51
"The dynamics of the economic engine are heavily fueled by demand."

Yet there can be no demand if there is no supply. Fact is, both are needed and are necessary for a free market. Production comes before consumption.

"Giving businesses property tax breaks and other tax cuts may be a short term help but the middle class will have to make up the difference. Extra taxes paid by them will take away purchasing power and eventually affect demand."

Truth is, that taxing both the producers and consumers takes away the purchasing power of both. It affects both supply and demand.


One side demands austerity for productive business, the other demands austerity for the consumer. The real problem is that both Democrats and Republicans are reluctant in imposing "austerity" in unsustainable government spending at taxpayer expense.

"The business community doesn't need to be fearful. It would be wiser to join this growth opportunity"

What Growth opportunity? How can there be growth for either private business or for the sovereign consumer by continuing to grow the size of State government at taxpayer expense?

 

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