Let’s say you make between $7.25 and $25 per hour, which would be most of the people living in this area. How would Gov. Dayton’s tax reform plan affect you?
Dayton is proposing an expansion of the sales tax to raise an additional $2.1 billion for the state.
The governor is proposing that the sales tax be lowered to 5.5 percent, but expanded to more services, resulting in an increase in the sales tax of $2.1 billion per year.
So who pays the extra money and how much?
Unlike the income tax, the sales tax applies to everyone the same, rich or poor.
Approximately 5.4 million people call Minnesota home. To raise $2.1 billion from them, it will cost an average of $390 per person. The Census Bureau also reports that approximately 2.54 people live in each household. The average household would then have to pay $991 in additional sales tax per year.
While it is true that the high income people among us would pay more sales tax since they most likely would be spending more, experience has shown that the sales tax falls hardest on those at the lower end of the income scale. Low income people pay a greater percentage of their income on sales taxes than do the wealthy.
The governor is betting that you will accept the sales tax because it is set up to cost you only a few pennies or a few dollars at a time. However, over time it adds up — on average to $991 per household annually.
In an exercise that would fail every truth-in-advertising test ever invented, the Minnesota Department of Revenue put out the argument that the sales tax reform would be a wash for consumers. It compares selected items under existing law to the governor’s reform plan — things like dog food, candy bars, bath tissue and hockey sticks. The only difference on the selected list is that over-the-counter cold medicine, heretofore tax exempt, would be taxed under Dayton’s plan. Because of the lowering of the rate, the document says, “You save $1.52.” That’s the costliest $1.52 you will ever “save.”
What the document conveniently ignored is that the sales tax would be broadened to include haircuts and perms; clothing costing over $100; memberships to a fitness club; getting tennis ball fragments dislodged from your pet dog’s intestinal system; curing your kitty’s mange; getting your home computer, washing machine or refrigerator repaired; changing the oil on your car or, worse, getting your transmission fixed; getting your income tax prepared and, my personal favorite, hiring a lawyer to get your deadbeat ex-spouse to make his Minnesota court-ordered payments. In short, all of life’s little irritations will scratch 5.5 percent deeper, and it makes no difference whether you can afford it or not.
But wait, it gets worse. In order to hide the tax from consumers as much as possible, the governor decided to raise a good chunk of it by taxing “business-to-business services.” For example, if a business hires somebody to plow its parking lot, it would now be taxed. Or if it decides to hire a lawyer or an accountant, decides to advertise, decides to hire a collection agency to collect past due bills, etc.
Businesses normally collect the tax from consumers, then pay the state. With business-to-business taxes, however, the tax would have to be passed through to you, the customer. That leaves the business owner with three options:
1. Reduce the business’s profitability.
2. Raise prices.
3. Cut expenses elsewhere — most likely in employee payroll.
Some businesses are so near the edge, they can’t cut profitability. They would close up shop.
If they raise prices, you, as a consumer, will pay more for that item. If you are an employee of an affected business, you may receive a smaller raise, no raise, or may even be laid off altogether. Under either No. 2 or No. 3, the cost to you, the taxpayer, would be even greater than the $991 in additional tax paid.
What’s ironic about the governor’s plan is that Democrats ran on a platform to raise income taxes on high-income earners. That’s also in the plan.
But no candidate said anything about raising taxes on the lower and middle classes, too — particularly with a regressive tax.
It’s interesting listening to Republicans criticize the governor’s plan. They complain about the income tax increases and about excessive spending increases (the governor’s proposal hikes spending almost 8 percent), but they don’t have much to say about the sales tax.
In fact, in Ohio, Republican Gov. John Kasich has a plan similar to Dayton’s to broaden the sales tax there. The difference is that Kasich wants to use it to cut income taxes 20 percent across the board, while Dayton wants to hike taxes on high incomes and hold steady on everyone else’s pay.
At one time, Democrats were the party of the working class. I’m not saying that the Republicans are, but if Dayton’s plan passes without substantial changes, it’s clear that those Minnesotans with lower incomes are going to be paying the price for the growth of government.
Don’t let the governor and his allies get away with claiming that they socked it to the rich. The increase in the regressive sales tax would be almost twice as much as the amount gained by adding another income tax tier for the wealthy. The governor wants to sock it to the working class, too.
Tom West is the editor and general manager of the Record. Reach him at (320) 632-2345 or by e-mail at [email protected]