For The Party or The People

When we vote our members of the Minnesota Legislature into office in St. Paul, we like to think that we are sending them to represent our interests, concerns and that collectively we will benefit from having a voice at the table.  Is that reality?

The Minnesota Senate and House are each currently considering budget and tax proposals that will have far and wide reaching affects on all Minnesotan’s.  While the to bodies differ in detail, in substance they are similar.  The budget proposals, along with the tax provisions seek to increase spending and increase revenue, via raising your taxes in a multitude of ways.

The Minnesota Senate passed a spending bill this week that would afford undocumented immigrants access to your hard earned tax dollars for use to pay in state college tuition.  The last time I checked, in state tuition was reserved for legal residents of our state and any financial aid that was provided was based on the fact that there was a financial need and that the individual resided, legally, not only in the country but in the state.  Does this type of activity represent your interest?  Is this the responsible spending that you believe our taxes should be raised for?

The Minnesota Senate also recently voted to increase their own pay.  Is it right that our legislators, who work for you, even have the capacity to increase their pay?  Do you have the ability to give yourself a raise where you are employed? Does this type of activity represent your interest?  Is this the responsible spending that you believe our taxes should be raised for?

These are just two smaller examples of the types of irresponsible and abusive spending habits that our current legislature has, and they funding them with your money. 

To further complicate things their tax proposals seek to raise large amounts of revenue from broadening the sales tax base.  Don’t let them fool you by insisting that the sales tax rate is decreasing. It may well be, but the number of things that are proposed to be taxed are much more numerous than is presently the case.

There are 35,000 business organized as C-Corporations in Minnesota, compared with 100,000 S-Corporations, 62,000 partnerships and 362,000 sole proprietorships according to 2010 Department of Revenue data.  There are hundreds of thousands more LLCs.  All of these, with exception of the C-Corporations, are organized as pass through tax entities, meaning that for tax purposes the income is taxed at the personal level.  For example; if three partners own a local business, each is taxed on the income made by the store in a pro rata fashion consistent with their percentage of ownership.  They are taxed on this income even though the income does not go to the individual.  In most pass through scenarios like this the income is used for property and equipment, hiring and employment, research and development and so on.  According to the budget proposals, this income will now be subject to dramatically higher tax rates because the K-1 income generated by these businesses will be subjected to the new fourth tier tax rate and possibly even exposed to a surcharge on top of that.

My concern is that this will have a severe and harmful effect on Minnesota’s fragile economy.  Small businesses in Minnesota provide more than 90% of all current jobs.  If the above proposals are not changed to exempt the K-1 income of these pass through entities, you can expect to see rising unemployment and lower wages across the state.  Additionally, the dampening effect it will have on small business cash flow will have a dampening affect on the ability for small businesses to seek credit and could bring about another round of stress on our banks.

The current budget proposals will place Minnesota as the fifth highest taxed state in the union. Is that what we want to be known for?  The Governor (who also works for you), for his part has protected his major source of income from increased tax rates however by leaving the capital gains tax as it currently is.  That seems more than a little hypocritical.

I urge you to get engaged, call you local Senator and Representative – THEY WORK FOR YOU – and tell them what YOU want and will them to represent YOUR desire in St. Paul, not their own and not the will of their party!

 

 

Grand Rapids State Bank Blog RSS Feed