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Haveman, Executive Director, Minnesota Taxpayers Association
Civic Caucus, 8301
Creekside Circle #920, Bloomington, MN 55437
January 29, 2010
Verne Johnson (Chair); David Broden (phone), Janice Clay (phone), Marianne
Curry, Paul Gilje (phone), Jim Hetland (phone), Jan Hively (phone), Dan
Loritz, Tim McDonald, Jim Olson (phone)
Context of the meeting—
Last year the Governor convened the 21st Century Tax Reform
Commission, and tasked it with seeking ideas for intergovernmental tax
reform. It was chaired by Michael M. Vekich. Their report, Minnesota’s
Millenium, was released last February and may be found online at:
Haveman served on the
commission, and will discuss his views of the group’s conclusions, where
the report is one year later, and what has come of its recommendations.
Welcome and introductions—
Mark Haveman joined Minnesota Taxpayers Association in 2002 as part of an
effort to revitalize the research and education arm of MTA, the Minnesota
Center for Public Finance Research—now called the Minnesota Center for
Public Finance Research. Previously, Haveman was Vice President of a
policy and technology consulting firm specializing in environmental
protection and resource conservation issues.
Haveman has served on
policy and project advisory boards for the U.S. Environmental Protection
Agency, the National Institute for Standards and Technology, as well as
for several state agencies, academic institutions and private foundations.
He received his B.A. from Calvin College and an MBA from the University of
Comments and discussion—During
Haveman’s visit with the Civic Caucus, the following points were raised:
1. The 2009 Governor’s 21st
Century Tax Reform Commission--Last
year the Governor brought together a commission of business
people—“Practitioners, in the trenches,” Haveman said. They deliberated
for 8 months, running subcommittees and bringing in guest speakers. “The
recommendations are rooted in thoughtful analysis, research, and
interviews,” he said.
question they pursued: What challenges is the state facing in coming
years? How should the state align its taxes to meet them?
of the commission did not include finding a fix to the budget, though they
did operate under a charge to keep their recommendations revenue neutral.
“We put the issue of how much to/not to tax aside, looking instead at
how tax revenues are spent.” Their’s was a “strategic goal, instead of
Department of Revenue runs annual Tax Incidence Studies, where it tries to
determine the last resting place of taxation—where the final weight of
taxes lies. “What this report has shown is that Minnesota is pretty
progressive in how it taxes, but the line does bend down among higher
commission treated business taxation as economists do, seeing higher
levies as passing down to individual consumers. By the work they reviewed,
Minnesota comes out toward the bottom of the national rankings in its tax
climate for business
2. Commission recommendations--Recommendations
of the commission may be found at http://tinyurl.com/ydquqmj, and fall
into four main categories:
business tax burdens
transparency of business taxation
investments in innovation, entrepreneurship and emerging/high-tech
reform while aligning the tax system with consumption
wondered if there was any talk of a Value-Added Tax (VAT). “Yes,” Haveman
replied, “and there are many ways to do this. The benefit is exceptionally
large base and low rates. But there is a challenge with implementation of
a VAT at the state level. Washington and Ohio did it. Their business
burdens were reduced by a billion-plus. But they are having trouble with
it.” He said that MTA’s problem with it—which is separate from the view of
the commission—is that that the state already has something similar in the
form of a business property tax.”
3. The response--A
member asked for the Governor’s response to the commission’s
recommendations. “The Governor met with the chair, and was supportive of
its work.” But he did not pick up the commission’s conclusions. “The
Governor was dealing with practical issues as the time,” Haveman conceded,
around the conclusion of the 2009 session and an unresolved budget.
his position? “The Governor neither endorsed or rejected them.” Art
Rolnick approved the goals and approach. “The question is how to juxtapose
practical and political realities” involving the commission’s
recommendations for ideal tax policy, and a deep, structural budget
imbalance. “The question is how to juxtapose practical and political
talking about the labor-side of things, a member complained: “About people
working longer. Boomers are the healthiest elderly we’ve ever had.”
4. We cannot afford to play follow the
leader—Erase the state’s corporate income tax--One
of the principal recommendations of the commission is its proposal to do
away with the state’s corporate income tax.
searched for where Minnesota could get the biggest bang,” Haveman said.
“The state corporate income tax is among the highest in the nation. It’s
broken, leaking, and we can’t fix the leaks.” On top of it all, “it is an
extraordinarily expensive tax to administer.”
quoted an economist that visited with members of the commission. “The
state should move it to the department of economic development,” he had
said, “because its integrity as an income tax is gone. Presently it is
used as a goody bag.”
eliminate it, versus cut it, a member asked? Haveman replied that the tax
is unnecessary and a hindrance, whether large or small—and if it is going
to be cut, it should be brought to zero.
eliminated the corporate income tax we would distinguish ourselves among
the states, Haveman said. “We cannot afford to be in a follow-the-leader
game, chasing the latest industry-de-jure.” He cited green energy. “Once
we would decide to get into something, five or six states will already be
common preference for tax breaks tied to activity,” Haveman commented.
“People think of the elimination of an entire tax a leap of faith.”
corporate income tax is comparatively small, in terms of the revenue it
brings in. “The tax is expected to raise about $400 million this year,” he
figured, and “if you went in on widening the sales tax, we’re talking $2+
professor present at the discussion agreed with the sentiment against the
tax. He commented that, “When I tell my students corporations don’t pay
taxes, customers pay taxes, they get it—and ask, why do we do that?”
5. Message to the legislature: How a state
structures tax rates is more important than issuing tax credits--“If
we don’t do anything,” a member asked, “what will happen to business in
all sorts of different people on the commission,” Haveman began, “and to a
person, they do not believe that legislators appreciate the importance of
the tax context. There is almost a smugness (on the part of legislators)
that we used to tax high and still grew. But as mobile as capital is
today, profits are even more mobile. You can funnel profits anywhere.
That’s why rates matter more than credits.
you get legislators to listen, a member asked? “Members of the commission
are literally walking them (legislators) through the play-out of
taxation,” Haveman said. “But it may take more hemorrhaging of companies;
more headquarters moving out of state” before the message strikes home.
that you are over people’s heads with technical stuff,” the chair
observed. “It seems you could get the message out if you put it in terms
of jobs, and how you expand the tax base.”
absolutely right,” Haveman replied. “People understand tax rates and jobs.
We need to get beyond the idea that you should give tax credits for
investment. Everyone is doing that,” he said, referring to other states.
“Get beyond that. It’s a national game of poker—I’ll see your credit, and
raise you a credit.”
6. Withdrawing Local Government Aid for an
expansion of the individual circuit breaker--A
member asked whether LGA can be withdrawn through expanded use of the
circuit breaker—an idea proposed by John James on January 15th.
Local Government Aid allows cities, regardless of their tax base, to
afford basic services.
give that a standing ovation,” Haveman replied, with a smile. Speaking
strictly for MTA, he said that, “We have come to conclude that it is time
to put it out. We have had seven eras of LGA according to House Research.
Every time we change it, new problems come up.”
design these circuit breakers to do anything, a member observed. It is a
simple, progressive way to target tax benefits at the individual.
you think of its prognosis? “Zero.” At least now. But it is an idea that
deserves to be heard.
In closing Haveman
praised the Civic Caucus, saying that, “I read every one of your emails.”
The MTA will continue to work on finding ways to best structure
Minnesota’s tax system for the individuals, employers, and public
Thanks all around.