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Reacting to the tax-cut rally that attracted thousands of Minnesota families to the state capitol in St. Paul, Dane Smith, president of the progressive think tank Growth & Justice told the Pioneer Press, “The fact is we have a budget crisis of historic proportions, and if we don’t raise a reasonable amount of revenue to continue funding vital public investments, we will threaten our prospects for long-term prosperity, A reasonable return to tax levels from a few years ago is necessary…”
Really?
The juxtaposition of the thousands of middle-class Minnesota families rallying for tax cuts and Smith’s progressive call for higher taxes to provide for ‘vital public investments’ is something of a disconnect. The rally turnout is evidence a lot of Minnesotans don’t see a lot of the investments that Legislators want to make with a lot of their money as being the least bit ‘vital.’ Progressive legislators are like the ever over-exuberant Boy Scout who drags the little old lady across the street whether she wants to cross it or not. The turnout at the tax rally shows that street-wise Minnesotans understand excessively high taxes damage the quality of life, and they aren’t about to be dragged down by an over-exuberant Legislature intent on earning its progressive merit badge.
The budget battle is not as simplistic, however, as cutting spending or cutting taxes.There are trade-offs between a tax system based on economic principle, tax burden and efficiency objectives and a tax system that Smith and progressive legislators propose motivated by distributional effects and equity objectives.
A tax system based on economic principle requires tax reform away from narrow high-rate taxes like personal income taxes and business taxes to a more broad-based low-rate tax system. Such reform appears regressive, but it is simply more transparent. Business taxes, for example, are passed onto consumers in the form of higher prices. Every food product and every item of clothing sold in Minnesota bears the hidden tax inherent in high business tax rates and costs imposed on business by high personal income tax rates. Progressive tax reform would raise personal income tax rates, which while appearing more “fair,” only compounds the problem of hidden taxes on items like food and clothing.
Progressives argue we ought to make our tax system “fairer,” but ultimately “ought” implies “can.” Raising taxes, in a recession or any other time, cannot solve the income disparity gap progressives are trying to close. Economic principles always prevail; increasing income taxes increases salary gaps, it does not decrease them. It’s time for the Legislature to craft tax reform based on economics, not wishful thinking. Craig Westover is a Senior Policy Fellow at the Minnesota Free Market Institute
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Join us for the third event which is timed to coincide with the end of the legislative session on Thursday, May 14 from 5-8 PM at Trocaderos in Minneapolis. Cash bar but munchies will be provided. 
