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Session 2001: The Tax Debate
By Mark Zdechlik, Minnesota Public Radio
July 3, 2001
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The decision by the Minnesota Legislature to largely take local property taxes out of school funding will mean massive property-tax cuts for home and business owners. The tax bill also fundamentally changes Minnesota tax policy, by shifting some of the property-tax burden from businesses to homes. Supporters say the changes will make Minnesota businesses more competitive, and force local governments to be more accountable for their spending. Critics worry the sum total of the property tax changes will be property tax increases for people who can least afford to pay.
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MINNESOTA BUSINESSES MAY be the biggest winners in this year's landmark tax change. Business leaders have long complained that state taxes put them at a disadvantage relative to competitors in other states and other countries "It's good news for business taxpayers because first we'll be getting immediate reduction of 10 percent," says Minnesota Chamber of Commerce President Bill Blazer. "That should help to make Minnesota businesses more competitive. Looking ahead to the future, because of the increases in accountability businesses will see slower property-tax increases."
Initially, homeowners will be getting even larger property-tax breaks than businesses, averaging nearly 25 percent. However if - or more likely, when - local governments increase levies, homeowners will be paying a larger share of the overall property-tax bill.
Minnesota Taxpayers Association Executive Director Dan Salomone says shifting more of the burden to homeowners is good policy that he thinks will generate more interest in controlling the size of government. "It doesn't sound like a good thing, but we tend to think that people make better decisions when they're well informed about what things cost and they have to pay for more of that cost. That's all this bill does," Salomone says.
The new law also taxes all homes worth up to $500,000 at a flat rate of one percent. So in addition to making homeowners responsible for a larger percentage of future property-tax increases, the law makes most homeowners share the tax burden equally, cutting the break that low-valued houses used to enjoy.
"The concern here is have we shifted too much? Are we going to have too much tax burden on homeowners and did the pendulum slip too far the other direction?" asks Jim Mulder, the executive director of the Minnesota Association of Counties, which supported many of the overall tax changes, except for provisions capping future local government taxing authority.
"This is going to be like a fine wine. If in a few years it ages well, we could have the finest wine we've ever seen in Minnesota. But if the cork isn't on quite tight, if it gets a little bit too much sun, it may turn to vinegar and we may need to fix it again," Mulder says.
Joe Pedersen, the mayor of Hawley in northwestern Minnesota, is all but certain the overhaul will have to be overhauled again because of the toll he predicts the changes will take on rural Minnesota. He says contrary to much of the rhetoric that's surrounded the property-tax debate, local governments spend money wisely. And he says asking homeowners with the lowest valued properties to pay a larger portion of the property-tax bill runs contrary principles of ethics and logic.
"At least it used to be and I still hold to that that we have some reason and need to take care of those who are less blessed than the rest of us are. And also if you make that lower-valued home so that it's unaffordable, you just create a housing crisis which we already have throughout the state," Pedersen says.
Supporters of the bill say property-tax cuts for apartments contained in the legislation will encourage private developers to build more rental properties. Even supporters of the tax overhaul acknowledge having a big budget surplus to mask future realities that would otherwise be hard for many constituencies to swallow.
"I've had calls from other states saying, 'how in the world did you guys figure out how to shift the tax off business property and to fix the system?' and, of course, the way to do it is very carefully and very slowly and it helps to have a lot of money around to buy off the losers and make them feel good about the deal," Dan Salomone of the Minnesota Taxpayers Association says.
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