Liebling backs state tax-credit review
The Post-Bulletin, Rochester MN
A closer look at tax expenditures
What happened?Rep. Tina Liebling, DFL-Rochester, is proposing a bill that would establish a commission to review the state's tax expenditures. Those include things like tax credits, deductions and incentives. Lawmakers would be required to renew these expenditures or they would automatically expire.
Why tax expenditures?A recent study found that there are 222 state-level tax expenditures that total an estimate $11.3 billion in lost revenue for the state each year.
Different perspectives:Liebling said it makes sense during these tough fiscal times to review these tax expenditures to see if they are accomplishing what they were intended to do. Critics, including the Minnesota Chamber of Commerce, say the bill could discourage businesses from locating in Minnesota because of the uncertainty as to whether these tax incentives will be renewed.
A Rochester lawmaker is backing a bill that would require lawmakers to re-examine all of the state's tax credits, exemptions and deductions. Lawmakers would then have to decide whether to reauthorize them or let them expire.
Rep. Tina Liebling, a Democrat, is sponsoring a measure that would require the legislature to review all of the state's tax expenditures to determine whether they are meeting their state goals.
"It is just a good government, common sense provision that just says we need to examine our tax code on a regular basis, make sure its fair, make sure it is doing what we want it to do (and) make sure it is not unduly complicated," Liebling said.
But critics of the bill say it could end up hurting the state's economy by discouraging businesses from locating and staying in Minnesota.
"It puts in doubt whether some credits and deductions that are commonly used around the country will be available for Minnesota business, and I think in that climate, businesses will look to other states," said Tom Hesse, the Minnesota Chamber of Commerce's vice president of government affairs.
Liebling's proposal comes on the heels of a report funded by several Minnesota foundations that concluded these tax expenditures need to be re-examined. Called "Bridges to a Better Minnesota," the report, produced by Public Strategies Group, found that 222 state-level tax expenditures add up to approximately $11.3 billion less in revenue per year.
Examples of tax expenditures include research and development tax credits for businesses and the state sales tax exemption for food and clothing. Other less well-known examples include a tax credit for small beer brewers and a sales tax exemption for ski-area equipment.
The bill would establish a Tax Expenditure Advisory Committee appointed by the governor that would include lawmakers, House and Senate tax chairs and represents of the public.
This commission would make recommendations as to whether or not to reauthorize a set of tax expenditures by Feb. 1 of the first year of a legislative session. Each two-year session, a different group of expenditures would be analyzed by category, such as general sales tax and estate taxes. Lawmakers would have to vote to renew these tax expenditures by the end of the two-year legislative session or they would automatically expire.
Renewed tax expenditures would require a goal or standard be in place to measure their effectiveness and would not require renewal for 10 years.
Liebling said it appears that part of her bill will be including in the large House tax bill. At this point, she said it appears the bill would require all new tax expenditures include standards in order to evaluate its effectiveness and would automatically expire in 12 years The tax bill would also call on the Minnesota Department of Revenue to get ready to implement the broader review of tax credits, exemptions and deductions.
With the state facing a massive financial crisis, Liebling said it only makes sense to take a closer look at these expenditures. She said she believes this proposal will ultimately improve certainty for businesses.
"Right now, any legislator can file a bill to change any tax provision at any time and of course they still would be able to do that under this bill, but they would have much less incentive to do it," she said.
Rep. Greg Davids, R-Preston, who serves on the House Taxes Committee said he does not see the need for a commission to review these tax expenditures.
"I am very leery of starting any new commissions to be doing that work that we as legislators should be doing," he said. "I am a member of the tax committee, and we have hearings on those issues, and we review them and we will decide what needs to be done."