Minnesota Democrats Gone Wild With Tax Increases

(David Strom, a Minnesota resident, is principal at Think Write Do, a public affairs and marketing consulting firm, and Taxpayers Protection Alliance (TPA) Research Fellow.)  Minnesota has a reputation as a bastion of liberalism, but for most of the past 2 decades that reputation has not reflected the reality of politics on the ground here.  Sure, my state has produced notable liberals such as Senator Paul Wellstone, but until 2010 no Democrat (we call them the Democrat-Farmer-Labor party here) had been elected governor since 1990, when Rudy Perpich left office.  Perpich, it should be said, set the goal of reducing taxes and taking Minnesota out of the top 10 states in tax rates, a goal that was finally met by Tim Pawlenty during his two terms in office.  All that changed in 2010, when true blue liberal Mark Dayton (heir to the Dayton department store fortune) was elected governor in 2010, and Dayton has made it his mission to get Minnesota back into the top rankings of high tax states. As soon as the Democrats took full control of state government, Dayton proposed increasing sales taxes on both consumer and business-to-business transactions, as well as raising income taxes on “the wealthy” and businesses. He also proposed a 3-year “temporary” income surcharge for incomes over $500,000, raising the effective tax rate on those earners to over 13%. The Democrats have proposed hefty increases on both cigarettes and alcohol, even touching a third rail in Minnesota politics—an increase in taxes on beer. Cigarettes would see an additional tax of $1.60 a pack, making the working class pastime of having a smoke with a beer a substantially more expensive pleasure. Even taking a shower after a hard day’s working, drinking, and smoking will cost more, as fees for water will increase.

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Minnesota has a reputation as a bastion of liberalism, but for most of the past 2 decades that reputation has not reflected the reality of politics on the ground here.

Sure, my state has produced notable liberals such as Senator Paul Wellstone, but until 2010 no Democrat (we call them the Democrat-Farmer-Labor party here) had been elected governor since 1990, when Rudy Perpich left office.

Perpich, it should be said, set the goal of reducing taxes and taking Minnesota out of the top 10 states in tax rates, a goal that was finally met by Tim Pawlenty during his two terms in office.

All that changed in 2010, when true blue liberal Mark Dayton (heir to the Dayton department store fortune) was elected governor in 2010, and Dayton has made it his mission to get Minnesota back into the top rankings of high tax states.

Dayton was thwarted over the past two years because Minnesotans elected, for the first time in our state’s history, a Republican dominated House and Senate. Dayton’s election was actually a fluke, as it was more a rejection of a Republican candidate seen as too out of the mainstream rather than an embrace of Dayton’s liberalism. Dayton won by fewer than 9,000 votes, with an Independence Party candidate taking 12% of the vote.

2012 was different, however. Obama swept Minnesota, and his coattails dragged in enough state legislative candidates to give Democrats control of both houses of the Minnesota legislature.

For the first time in three decades, liberals are in control of state government.

The result is a feeding frenzy. In a private conversation, a former high-ranking DFL legislator described it to me as “sharks going after chum in the water.”

As soon as the Democrats took full control of state government, Dayton proposed increasing sales taxes on both consumer and business-to-business transactions, as well as raising income taxes on “the wealthy” and businesses. He also proposed a 3-year “temporary” income surcharge for incomes over $500,000, raising the effective tax rate on those earners to over 13%.

Legislators weren’t thrilled with Dayton’s proposal, but it opened the floodgates for alternative tax increase plans from the House and Senate.

Democrats in the House have proposed massive tax and fee increases totaling nearly $3 billion, including Dayton’s proposed $1.23 billion in “temporary” income tax increases for those making over $500,000 a year, as well as a new income tax bracket for those making over $226,000 a year.

For those earners Minnesota would jump to the third-highest tax state in the nation, just after California and New York.

Businesses, too, are hit hard. Minnesota is already near the top of business tax rates, but the Democrats are proposing an additional $316 million in tax increases to ensure that employers pay their “fair share.”

The middle-class does not go unscathed. The Democrats have proposed hefty increases on both cigarettes and alcohol, even touching a third rail in Minnesota politics—an increase in taxes on beer. Cigarettes would see an additional tax of $1.60 a pack, making the working class pastime of having a smoke with a beer a substantially more expensive pleasure. Even taking a shower after a hard day’s working, drinking, and smoking will cost more, as fees for water will increase.

Over the past few decades Minnesotans have benefited from state leaders who have focused on reigning in government taxing and spending. Republican and Independent governors, divided legislatures, and a strong business lobbying community have made progress, in fits and starts, to making our business and tax climate friendlier and more vibrant. The result is that Minnesota’s unemployment rate is traditionally among the lowest in the country.

All that is about to go out the window, as Democrats satisfy decades of pent-up demand for higher taxes and more spending.  

It’s a grand experiment in liberal governance, and one likely to end in tears. For years the business community has warned that high taxes make Minnesota less attractive for business than it could be, and policy makers have responded.

After this year, we may find out whether there is a breaking point.