Bringing Home The Bacon
Our elected officials in the District of Columbia gave us some sort of tax reform or reduction and job creation legislation for a Christmas present. The corporate went to 21% to enable us to compete better internationally. It also provided a repatriation rate for corporate funds parked overseas of a one-time 15.5%.
An acceptable estimate of the corporate profits floating around overseas is in the neighborhood of $2.8 Trillion. That’s not a bad piece of change that could be put to work in this country.
One other concept enacted was to tax corporate earnings “territorially” meaning that profits should be taxed in the country where they were earned. Countries compete with one another and their tax climates for businesses and jobs play a role in their successes. Competitiveness is a business and job creation inducement and incentive whatever the jurisdiction… and that brings us to Minnesota.
The United States competes internationally. The states including Minnesota compete nationally with each other. Our intra-U.S. territorial concept becomes – let’s invent a word if it doesn’t exist-“statorial”. One state versus another to attract and hold businesses and jobs and at the same time avoid population and wealth out-migration. People normally would want the state they reside in to have a healthy economy, be welcoming and a good place to live and retire in.
This calls for a balancing act by the political leadership of a state. Going too far in any direction leads to less desirability and economic decline.
Minnesota’s political leaders got out of hand in 2013 enacting anti-business, anti-jobs and anti-wealth legislation that is now beginning to show. Our economy is growing at a more tepid rate than those of other states. Our working-age earning population is declining. Wealth at the senior level is departing this state.
We can’t put a yardstick on the entrepreneurial talent we may be losing or failing to attract. Shun the risk-takers and you shun potential job creation.
What are some specifics? We don’t have space to get into heavy details so let’s just toss a few thoughts out in three areas. First, the 2013 legislature enacted a 25% personal income tax increase to a new bracket of 9.85%. We called it the Edina tax after the Wall Street Journal description of it. The Journal also recently listed us as the fourth highest income tax state behind California, New York, and Oregon. Oregon just barely beat us out. A precise comparison of the other two is not easy because of the brackets and possible deductions. California, however, does take the lump for being the nastiest.
Next, Minnesota added a three-year gift tax claw back to the estate tax, making planning more difficult. The message being, leave sooner. That means tax revenue loss for state and local coffers and fewer work opportunities for wage earners. We want people to stay here, pay taxes here, spend their money here and help employ others here. Telling them to move to lower tax states is great rich-bashing politics but dumb economics.
The third factor we wanted to cover is our gotcha residency game. We actively encourage those with a few bucks to leave Minnesota. Then we play games with them to say you thought you had left the state and established residency elsewhere BUT, you did some stupid things and spent some money in Minnesota, which the Revenue Department now says you are a resident here as well and ah-hah you owe us tax.
We have proposed that there be a “safe harbor” residency statute. If you establish voting residency elsewhere, pay your federal and state taxes (if any) there and stay out of Minnesota for six and a half months of the calendar year, you are by state law not a resident.
We also proposed to stop the residency games playing by defining in law a day of residency constitutes a 24 hour period of physical presence here from 12:01 AM to 12:00 PM. We also had proposed that coming here for medical treatment from another state does not constitute residency.
What to do? Start by repealing the 9.85% bracket.
The feds eliminated the estate or death tax. Minnesota should follow and abolish its gift-estate tax.
Fewer people would likely leave this state if the estate tax is wiped out and that would lessen the residency issue but we would urge the legislature to clear up residency by enacting the changes listed above.
The above changes would help Minnesota become more attractive and incentivize businesses to stay and locate here. A vibrant economy starts with a vibrant outlook.
Bob Smith 3rd
Gopher State Politics Institute
December 27, 2017
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