Can I tell you something else that I think help create a good environment? My wife and I invited every single legislator and spouse [not all at once] to the governor’s residence for a sit-down dinner.”
Former Gov. Wendell Anderson*
Former Governor Wendell Anderson, affectionately known as Wendy, in the above quote was describing the work it took to create an atmosphere to pass Minnesota’s largest tax reform in our history in 1971. This successfully bold tax reform would be later dubbed the “Minnesota Miracle”.
The primary source of funding for governmental services prior to the 1971 reform came from the regressive property tax levied by local units of government like counties, cities and schools. Wendy’s plan called for the state to take over a large share of the funding of education, relieving the burden on property taxpayers. Anderson proposed a $762 million boost in state taxes, a nearly 30% increase to a legislature controlled by the conservative caucus. A bold move and even more impressive given the fact that he succeeded.
It did take several dinners and the longest special session in our state’s history to date of 159 days. The eventual compromise plan increased the state budget by $588 million by substantially increasing taxes on liquor and cigarettes along with corporate and personal income tax hikes and a 1-cent rise in the sales tax from 3 cents to 4 cents. He was able to make a strong pitch for these taxes by substantially increasing state aid for education from 43 percent to 63 percent, which allowed meaningful reductions in the property tax burden (on average 11.5%).
Many thought that Gov. Anderson was doomed in his next election as the governor that raised taxes, but Wendy won handily and surprised his critics by helping sweep in DFL majorities in both houses of the legislature. A couple of years later, Time magazine featured the Minnesota Miracle with a cover story entitled “A State That Works.” On the cover was the now iconic image of Wendy holding a scrawny northern in his best Paul Bunyan-ish blue plaid shirt looking every bit the Minnesotan at the fishing opener.
Some 42 years later Governor Dayton appears to be hoping to re-create a miracle by proposing this week an extremely bold budget marked by significant tax reform. He is seeking to reduce property tax burdens that have increased significantly over the last decade due to shrinking state aid to our local jurisdictions without reducing mandated services. Additionally he’s seeking a slight increase in the budget and placing it on a sound fiscal path without any gimmicks. To accomplish that he is calling for a 20% increase in the sales tax by broadening the items and services taxed, an increased income tax on the wealthiest and a 95% increase in the cigarette tax. Sounds pretty familiar.
He will likely see significant pushback from the legislature on broadening the sales tax from both parties. His proposal is to tax most services and clothing items over $100 while actually lowering the sales tax rate to 5.5 cents. Similar efforts have been tried in the past without any success. The Republicans will be in an interesting bind on an expanded role for the sales tax. Some of their national conservative heroes like Louisiana Governor Bobby Jindal and Kansas Governor Sam Brownback have both recently proposed expanding sales tax revenues with the goal of eliminating or substantially reducing their income tax. Republican economists find the sales tax preferable to income or property taxes.
It will be argued that this sales tax change will put us at a competitive disadvantage to our neighboring states, but this will not hold up. We presently enjoy the fewest number of services and products subject to the sales tax. All of our neighboring states impose sales taxes on clothing. South Dakota is often touted as business friendly compared to Minnesota, but they tax almost all business-to-business services. South Dakota along with Iowa also taxes most services like haircuts, accounting, legal advice etc. Further, the lower rate will actually put us more in line with our neighbors.
The good news for our great outdoors is that the Governor’s budget lives up to the billing of no gimmicks and fair increases to appropriate government services. After 10 years of raids on environmental programs to balance budgets coupled with significant cuts in the general fund, it was refreshing to read Governor Dayton’s budget. For the first time in over a decade the key agencies that protect our environment and natural resources saw a proposal that actually increases in their budgets over their last session’s baseline without one-time gimmicks. The increased funding is a respectable 5.4%.
The Governor’s budget also focuses dollars in areas that have seen substantial reductions over the last decade. For example, the Ecological Services and Water Division of the DNR has been barely kept functioning due to cuts and only kept going through one-time gimmick funding. The Governor is proposing an actual 16% increase over last year and he permanently places that increase in the base budget. That means the agency’s critical work in protecting our lakes and rivers from being degraded will not have to worry whether they are going to be shuttered in the next legislative session.
Like Governor Anderson 42 years ago, Governor Dayton has a major task, along with quite a few dinners with legislators, ahead of him if he is to succeed on this bold proposal. Fortunately for the great outdoors, his proposal of a no gimmicks budget is pleasantly true. Therefore, those who care about our natural resources and the environment might want to give his tax reform careful consideration before they complain about having to pay sales tax on a haircut.
*Minnesota Historical Society, “The Minnesota Miracle: A Roundtable Discussion,” by Steven Dornfeld for Minnesota History, 60 no. 8 (Winter 2007-08) p.312-325