Minnesota Governor Still Trying To Raise Taxes

If you think taxes are high where you live, wait until you hear about what some Minnesota residents may soon be paying.  Significant tax hikes on tobacco and other products are included in Minnesota Governor Dayton’s proposed budget. According to Duluth News Tribune, “Gov. Mark Dayton, in both his initial budget proposal in January and in his revised spending pitch last week, called for increasing the state’s current tobacco tax of $1.23 per pack by another 94 cents. Other legislative proposals would jack up the tax by anywhere from $1.29 to $1.60 more per pack. Duluth’s Democratic Rep. Tom Huntley has proposed a $1.50 increase. A $1.29 tobacco tax hike would put Minnesota on par with neighboring Wisconsin.”

That increase is expected to raise an additional $365 million for the state budget over two years.  Unfortunately, these revenue expectations tend to be Fool’s Gold. The Minnesota State News pointed out that “Since 2003 there have been 57 cigarette tax increases across the nation and 68% of them have failed to meet projected revenues. In 2006, New Jersey raised cigarette taxes with the hope of pulling in $30 million in extra revenue each year.  Not only did the tax hike fail to bring in extra revenue, but the state actually collected $20 million less in cigarette sales.”

Although in the past Governor Dayton has tried to avoid increasing taxes on cigarettes because they are among the most regressive taxes out there, he’s now had a change of heart that will likely hit the poorest among us the hardest.  He justifies his decision by reasoning that the regressive tax is justified in that it will ultimately “outweighed by the fact that increasing cigarette taxes has been shown to reduce the number of people who smoke.”  While we can applaud Governor Dayton for his forthrightness, his admission makes one wonder just what he really wants to accomplish by increasing cigarette taxes.  Doing so to raise revenue? Or conduct a endorse an experiment in social engineering that ends with the government telling people what’s good and bad for them.

The reason Minnesota taxpayers are faced with these flawed proposals is because the state government has gotten itself into a bit of a situation.  Specifically, Governor Mark Dayton has proposed an “additional $2.1 billion in state taxes to cut into the projected $1.1 billion deficit.”  That deficit was one projected in January.  In February, according to Twin Cites Business, “A new budget forecast shows that Minnesota will face a $627 million deficit in the 2014-2015 biennium—a significant drop from the $1.1 billion deficit that was projected in November.”  These sorts of state budget deficits are inevitable when the state overspends and gets used to the federal government stimulus to keep it afloat.  Government’s proclivity to overspend isn’t the only problem here.  It’s also that the government, state and federal alike, seem to forget that there are other ways to solve this problem; ways that don’t involve tax increases.

Governor Dayton came close to understanding this when he asked, “Those who say spending is too high, I challenge you to say exactly where more cuts should be made,”  Dayton said. It would take the rest of this blog (and then some) to list all the cuts that could be made to the budget.  Instead, let’s look at a few of the places where Dayton plans to increase spending as proposed in his latest budget.  As a local news outlet reported, “Dayton proposed $40 million in funding for all-day kindergarten, providing access for 46,000 students. He also called for $118 million in new school funding, including $52 in new funding for every student…His plan for more education spending accounts for almost two-thirds of his proposed state spending increases. Dayton has pledged to increase K-12 education funding every year in office.”  Federal programs such as Head-Start and a variety of college loan programs already provide for what Dayton hopes to achieve here.  The trouble is as the failed government programs demonstrate throwing more money at a failed program doesn’t make the program into a success story.  All it means is taxpayers will be out even more money.  Dayton should save the taxpayers of his state from being taxed for education programs like these that will lead to the same dead-end as the federal programs have.

While on the topic of learning from mistakes of the federal government, the state of Minnesota would also be wise to abandon the idea of increasing tobacco taxes as a way to fund the state’s spending.  As Kim Crockett of the Center for the American Experiment explained during her testimony before Minnesota lawmakers, “This [the proposed cigarette tax increase] would essentially prohibit smoking by price, making smoking de facto illegal.”  She continued, “We already learned the hard way with the de jure prohibition against alcohol that free people will find a way to consume prohibited products.”  Not only is the government usurping its role by proposing such a significant tax increase, it also will fail to deter people to quit smoking.  As Crockett notes, where there’s a will, there’s a way.

An article goes on to explain, “Crockett and other witnesses pointed out that many states have overestimated how much revenue the incremental increase in tobacco taxes will generate.  They suggest that Minnesota will face budget shortfalls if lawmakers bank on those staff projections.” Minnesota’s lawmakers should take this opportunity to learn from other states and not rely on a tax increase that is not only among the most harmful tax on poor people, but also is a tax that will harm many, but help few.  Instead, the state of Minnesota should embrace this budget period as a way to get the state’s finances back on track.  Not by looking for new revenue streams, but by looking for redundant wasteful programs to cut.  And once they’ve completed that exercise, there will be no need to raise taxes.