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Tribune Editorial: Minnesota should reduce tax rates to be competitive

Following the return from their Easter recess, the Legislature and Gov. Mark Dayton will face decisions on many issues: how to deal with opioids, school safety, bonding investments, fixing MNLARS and many other priorities.

The primary need will be how to address the state’s tax system, conformity to the federal tax reform and possible tax relief for Minnesota businesses and individuals.

Minnesota currently has a perfect opportunity to make changes to the state tax code to improve the business and individual competitiveness. Tax reform at any level is always a challenging debate, but it is one the Legislature and the governor must address this session.

There is no time like the present.

The state now faces a $329 million budget surplus, a nearly $500-million plus swing from the November projection of a $188 million state budget deficit. The massive federal tax bill passed by Congress in December has created some short-term stimulus to the state economy resulting in increased consumer spending.

While the federal tax bill is having a positive impact on the economy initially, Minnesota’s tax code must be adjusted to deal with federal tax code changes. If the state conforms merely to federal code changes without adequate tax reforms, revenue officials estimate that about $1.168 billion more would be collected during the next two-year biennium.

State lawmakers need to find a way to make taxes less complicated and limit the impact of any possible tax increase resulting from federal tax changes.

With a state surplus and federal tax code changes, now is an excellent time to consider state tax changes to improve tax competitiveness, compared to other states.

Minnesota has improved in recent years in many areas. According to a Minnesota Chamber Federation report, growth in state’s gross deomestic product of 1.3 percent, boosted the state's ranking nine spots to 24th nationally.  The annual job growth was 1.7 percent, improving 10 slots to 20th nationwide. Those are good signs.

However, Minnesota’s top individual income tax rate is 9.85 percent, which is the third highest in the nation. And Minnesota’s top corporate income tax rate is 9.8 percent, which is also the third highest in the country.

Being ranked among the top five states on these two basic tax measurements is not a good thing, especially when business leaders are considering expansion or movement decisions for their operations.

Also, more than 90 percent of Minnesota business owners pass their business proceeds through their individual tax returns, which has an impact on business decisions.

If you are a business person considering an expansion or location decision for your business and you can move or relocate to Wisconsin, Iowa, South or North Dakota and benefit from a better tax climate, what decision would you make?

Higher than average tax rates hurt business development and growth, which in turn reduces business competitiveness and, in turn, impacts investment in employees and operations. Those same business challenges also affect employee recruitment and retention.

Minnesota should consider reducing both corporate and individual tax rates to adjust to the federal tax reform changes and make the state more competitive and improve our business climate.

The state is facing its fifth year of a state budget surplus. Now is the time for the Legislature and the governor to make some tax rate reductions to invest in Minnesota’s businesses and individuals. If there is not a change in tax rates, Minnesota businesses and individuals will pay more than $2 billion in additional taxes in the next four years.

No one wants Minnesota to be the tax rate leader in the nation.

This editorial is the opinion of the West Central Tribune’s Editorial Board of publisher Steve Ammermann and editor Kelly Boldan.

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