Minnesota’s Business Taxes, Climate – Not So Bad

Governor Tim Pawlenty in his 2009 state of the state address called for reduced corporate income taxes as a way to help Minnesota recover from the national economic crisis.  According to the governor, Minnesota’s business taxes are out of line.

For the high tax claim, the Pawlenty hangs his hat on a short Tax Foundation write-up that adds U.S. and corporate income tax rates together and compares the rates to those of foreign nations. While this has set off alarm bells in the Pawlenty administration, it’s not a very useful exercise because corporate income tax rates are but a one part of the total picture for business taxes.

The range of taxes on business certainly includes the corporate income tax — for corporations, anyway — but also includes property taxes, sales taxes, individual income taxes for small businesses, license fees, workers compensation taxes and unemployment insurance charges. 

Minnesota is competitive when it comes to business costs and taxes, says the website for Minnesota's Department of Employment and Economic Development. As noted there, a 2004 study by the Federal Reserve Bank of Boston ranked Minnesota 41st for taxes as a share of business profits.

And the private-sector consulting firm Anderson Economic Group, in its latest annual report [download pdf] identified Minnesota as the fourth lowest state for business tax burden using a broad range of business taxes measured against profits earned in the state. Clearly Minnesota's rank would change if other measures of taxes or business earnings were applied, but the AEG report demonstrates the difficulties with blanket statements about high business taxes in the state.

For businesses, of course, it’s more than just taxes that shape the environment. Forbes Magazine recognizes as much in its annual ratings of the best states for business. Of the 50 states, Minnesota ranks 11th. Not bad.

Over the years, Minnesota has been a great place to do business in part because of ample but smart public investments in quality education, transportation and other infrastructure, and quality of life concerns, such as health and the environment.

Corporate income taxes may be an issue — or maybe not, given a total accounting for all of the state’s business taxes. Either way, corporate income tax cuts do not jump out as a key issue for the state to tackle in the midst of a sagging national economy and a massive budget deficit.

— Matt Kane

Comments

[Pat]

If you reduce business taxes you increase employment, wages, consumer spending, retail and wholesale prices and benefits...pretty sound economic policy. Where we "rank" has little to no bearing--reducing taxes on business means more money in all of our pockets.

[Bob]

How does reducing taxes increase employment? Where is the connection? Doesn't demand for product increase employment? Lower business taxes equals more shareholder profit, not more money in our pockets. What you call sound economic policy, I call simple and wrong.

[Cam]

Pawlenty will be on MPR on 1-26-2009 during the mid day segment. Could Matt please call in and point out these other measures to the Gov? In particular the state web page promoting the good business climate in MN which disputes his current version (for home consumption) that business climate sucks. Pawlenty has selectively chosen an anti-tax group (as usual) to hawk this agenda. I will be tied up and can't call in, and he would do a better job.

[mr.x]

Here is how reduced taxes increases employment: 1) reduced taxes makes Minnesota more attractive for start-ups and existing businesses to incorporate and set up shop in MN, 2) lower taxes increases business profits and the profits are then distributed or reinvested: either way, the funds are in private hands and used more efficiently than the dead weight loss created when a tax is levied; 3) lower taxes results in more capital being available for profit producing activity (bank loans, venture capital, etc). It is no secret that MN is on a death spiral of high taxes and low growth. MN sucks for business not only because of the high taxes but because there is too much state government. Government exists in MN often for the sole purpose of making it needlessly more difficult for business owners. Just ask anyone who has dealt with the dept of commerce. I have a client that has to deal with the DOC because the doc believes he may have to be licensed. They don't know for sure but nonetheless have issued supoenas for records so they may determine if they should be licensed. MN needs to cut state government by 50% eliminate all income taxes and maybe this state will be competitive. Otherwise, MN=California.