The Minnesota DFL (the state’s Democratic party) has a crowded field for the 2010 gubernatorial race, with about 10 credible candidates vying for the nomination. One of them is Sen. Tom Bakk (DFL-Cook), the Chairman of the Senate Tax Committee and a darling of organized labor. Sen. Bakk has wasted little time in showing his true colors to prospective voters, introducing a bill this session that would extend the sales tax to clothing, a $300 million annual tax increase.

The tax hike is coupled with a flimsy promise to cut the overall sales tax from 6.5% to 6.25% in the future. It’s the classic "broaden the tax base now, lower the overall rate later" ploy. First, Minnesotans can reasonably expect the future cut in the overall rate to be delayed or ignored down the road. Second, broadening the tax base is only acceptable if the corresponding rate cut at least offsets the additional revenue increase. That’s not the case with Sen. Bakk’s proposal.

Unsurprisingly, the Senate Education Committee took a voice vote on the bill this morning. They avoided putting the vote on record because they understand the implications for lawmakers who choose to raise taxes in the middle of a recession.

Gov. Pawlenty is on record in opposition to this and any tax increases this year. He prefers spending restraint and tax cuts for the business community to spur job creation and economic growth.

ATR’s letter to the Legislature:


March 9, 2010
Minnesota House
Minnesota Senate
Dear Legislator:
Sen. Tom Bakk has proposed extending the state sales tax to include clothing purchases, with the promise of eventually reducing the overall rate. This represents a net tax increase of $300 million per year in the midst of a painful recession and should be declared dead on arrival in the legislature.
Minnesota’s spending excess/overage – nearly $1 billion – cannot be eliminated with higher taxes on consumers. Spending restraint is the only economically viable path to restore prosperity to the state.
Sen. Bakk argues that by cutting the overall sales tax rate by 0.25 percent, this proposal constitutes a net tax cut. This is untrue, as extending the sales tax to clothing pays for $1.2 billion in new spending in addition to the lost revenue attributed to the rate reduction. It is also unclear if the rate cut will ever take place, as it is scheduled to take place in the second year of the plan. History shows that “future” tax cuts often fail to take place as scheduled.
Lowering tax rates while broadening the tax base are laudable goals, but Sen. Bakk’s proposal is unacceptable for two reasons. First, rate cuts should occur before any extension of the sales tax. Minnesotans simply cannot trust government to honor a tax cut promised at some point in the future.
Second, the Bakk plan is a net tax increase. The general sales tax rate must be reduced to a level that at least offsets the amount of revenue raised by extending the tax to clothing sales, or preferably further. The proposal as currently written represents a punitive tax hike on consumers at a time when they are already forced to make difficult decisions in the face of economic uncertainty.
Of course, the state’s budget woes do not reflect a revenue problem, but an overspending issue. Outlays have increased by an average of 21 percent per budget cycle over the past half-century. That kind of government frivolity crowds out growth from the private sector – where sustainable job creation takes place. In addition to a wholesale rejection of this $300 million sales tax increase, I encourage the legislature to embrace Gov. Pawlenty’s proposed constitutional cap on spending growth, which would get government under control and put Minnesota on a path to prosperity.
It’s time to stand up for the taxpayers of Minnesota and have an honest discussion about the proper path out of this recession. That discussion should not include tax increases of any shape or size, including Sen. Bakk’s sales tax hike.
Grover Norquist