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Watch for tax expenditures as the solution in June, despite last week’s chain yanking

Date Published: 02/28/2011

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Two months in to the legislative session, some of the more moderate and independent conservatives were daring to suggest reasonable revenue options, such as eliminating tax breaks and deductions.  But then somebody yanked the chain and gave the order to get back in line.  And that helps explain the letter to Gov. Dayton late last week, signed by all 37 senators in the majority caucus, affirming that they are still opposed to raising taxes to balance the budget.

But let's consider the door ajar, and certainly not locked and bolted, especially on the option of removing "tax expenditures" (basically exemptions, credits and loopholes that favor certain folks or activities within a broader tax type).  The rationale is well established for going after tax expenditures as not only a way to raise revenue, but also as a redesign overhaul that will bring more progressivity and stability to our state's increasingly complex system.

Sound advice on how to think about tax expenditures and ideas for evaluating them and even "sunsetting'' some of them are contained in a report submitted to the Department of Revenue entitled "Tax Expenditure Review Report: Bringing Tax Expenditures Into the Budget Process.'' Among those on the panel that produced the report are our Growth & Justice Policy Fellow, Marsha Blumenthal, professor emerita at the University of St. Thomas, and John Spry, also an economics professor at the University of St. Thomas, whose expertise is often sought by conservatives.  Former Minnesota Finance Commissioner Jay Kiedrowski and Judy Temple, both professors at the University of Minnesota, and each of whom have served on advisory panels for Growth & Justice, are co-signers of the report.

The report calls for establishing a Tax Expenditure Commission to oversee an evaluation process and to define a clear and measurable purpose for each tax expenditure.  The report even calls for a process whereby tax expenditures could automatically expire.  Helpful information about tax expenditure redesign and reform efforts in other states is included.  The report also provides an invaluable tool for amateur budget-balancers, because it lists all tax expenditures and the multi-billion cost to the public for breaks ranging from the home mortgage deduction to the tax breaks given to ministers for their housing, to a very long list of sales tax exemptions on a seemingly random list of services and goods.

The political benefits of removing tax expenditures are obvious.  They plausibly can be described as expenditures that cost the state revenue, not just tax increases.  Removing them constitutes a form of redesign and reform.  And Republican majority members in the House and Senate are to be commended for openly debating the merits of this approach to rasing new revenue.

And finally, it's a hopeful sign that the letter to Dayton was not actually written in blood and the tone remains civil and hopeful.  While the signers affirm they are "opposed'' to tax increases, they also say they are "working diligently...to indentify and develop the concepts for long-term redesign and reform."  And one of the more hopeful signs of possible compromise is that we simply don't hear much at all about ironclad "pledges" not to raise any new state taxes under any circumstances whatsover.   Those were a fixture of all-cuts sessions a decade ago, and many thoughtful Republicans such as former House Speaker Steve Sviggum never signed them, and warned against them.

Dane Smith 

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