We’ve just finished up our analysis of the major tax proposals made in the 2009 Legislative Session and what tax policies were passed by the legislature or implemented by the Governor through unallotment. And what really jumps out at me are the opportunities lost.
We entered the 2009 session facing a serious budget deficit. We also have a state and local tax system that is a smaller share of the economy than a decade ago. The average share of income that Minnesotans pay in state and local taxes dropped by 13 percent from 1996 to 2006. In addition, the tax system is becoming more regressive – meaning that low- and middle-income Minnesotans pay a larger share of their incomes in taxes than those with the highest incomes.
It’s been frequently said that you should never let a good crisis go to waste. So while it isn’t a good thing to have a terrible economy and a huge budget deficit, those circumstances did allow for a rigorous debate about the role of raising revenues as part of a balanced solution to the state’s budget shortfall, and about the value of rebalancing the tax code.
We saw some interesting and creative proposals to do those things in this legislative session. As we’ve described in our blog and also in our new analysis, the House tax committee under Representative Ann Lenczewski’s leadership passed a comprehensive reform of tax deductions and credits – a package intended to simplify the tax code and to ensure that, when the state does use the tax code to provide incentives for certain kinds of behavior, that those tax benefits are available more broadly.
By the end of the legislative session, each body of the legislature passed three tax bills that would have started to reverse the trend of greater regressivity in Minnesota’s tax code. These bills were part of a balanced approach that would have reduced the need for painful cuts to services. Each of these bills fell to the Governor’s veto pen.
But more tax debate surely lies ahead. The state continues to face severe budget deficits in the next biennium…and if the recent spate of bad news continues, a new deficit may well arise in the current budget cycle as well. Those interested in public policy may want to study up on the tax proposals that were debated in 2009 – we’re likely to hear about these and other tax reform ideas in the months to come.