Category: Taxes

by Dave Mindeman

Once again we need to dispel this myth that tax cuts automatically lead to economic growth of gigantic proportions.

It doesn't. It hasn't. There is only one time...60 years ago...when this claim could be justified. And that was during the Kennedy administration when they did away with those 90% tax brackets, that really did limit growth.

But tax rates, for the most part, have been under 40% for the wealthy since Ronald Reagan. And the continuous GOP mantra about endless tax cutting has only resulted in debt ever since.

Wealthy Americans have plenty of money for investment if they wish to. They have a lower capital gains rate to help them invest. But any further tax cutting does NOT result in growth, especially if those tax cuts are given to high income earners. It leads to saving that additional money - money which is taken out of the economy.

If our leaders would leave the rates for the wealthy alone - and concentrated on tax reductions for everybody else - then you may have a quality argument. Lower wage earners will utilize and spend the savings they could attain. That may have a beneficial effect on the economy.

But with so much national debt - with continued deficits in the budget - and with so many obligations because of natural disasters - how could any fiscally responsible person even think of further tax cuts?

The caveat is that we do not have any fiscally responsible persons in leadership positions.

We only have bought and paid for, Congressional lackeys.

Category: Taxes

by Dave Mindeman

I want to discuss a study done by the Republican think tank - The Center For The American Experiment. They take IRS data and use that to form some conclusions. I question the conclusions.

First, here is the premise:

Data from the Internal Revenue Service (IRS) point to one clear and worrisome fact: People vote with their feet and Minnesota is losing
population and income to lower tax states.

And what states would they be?

Arizona, Colorado, Florida, Georgia, Nevada, South Dakota, Texas and Washington.

At least that is the states they chose to list. They left off 2 other states in the top 10 in this regrard. California (#4) and North Carolina (#8). Obviously, for their purposes, using California in a "low tax" migration is not the right narrative.

But look at these 10 states. With the exception of South Dakota and Washington, what do these states have in common?

Better climate.

South Dakota and (oddly) Wisconsin are net negatives for MN migration. They are border states and the back and forth population flow is somewhat explainable. We get positive net migration from North Dakota, Iowa, Illinois, and Michigan. A sampling of Midwest ebb and flow.

But the vast majority of MN migration heads south and to the west coast. Is that a tax issue or a weather issue? Yes, a number of southern states are low tax, but what about California (#4) or Oregon (#12) or Wisconsin (#11)? Hardly low tax states. (The study explains Wisconsin as a Twin City expansion, since most of the migration is to the western Wisconsin counties - probably a valid argument.)

The study even mentions the geography, but still wraps it into a tax conclusion, rather than climate.

Then there is the point about "who" is moving. And again the Center points out that higher income earners are the ones leaving our state. The older the person, the more likely that the age group has a net loss in population.

So, again, is that a surprise? Older people have been heading south from Minnesota for a generation. People with higher, stable incomes may consider taxes as one variable, but, likely, the more important aspect is dealing with the elements.

And frankly, tax reasons for the higher income movement is pretty questionable. After all, when your income is based on retirement money, dividends, or bond income....your taxes are controllable in an accounting sense; no matter where you live.

In the age group, 26-34, Minnesota has a net positive migration. The study classifies them as "low income" earners. Almost as if they are a drag on the state economy. The truth could also include the fact that young people just starting out, choose Minnesota to establish roots....and they have a number of earning years ahead of them.

One troubling note is that young college graduates who leave the state, do not often come back. That is the "brain drain" in our attractive education training ground.

This study uses the IRS data to draw its own conclusions. Those conclusions are not supported by actual facts, just their own logic. Here is one of their conclusions:

IRS data show that Minnesotans tend to move to low tax states. A review of the tax policies of the top ten states receiving income from Minnesota with the top ten states contributing income to Minnesota shows Minnesota tends to lose income to low tax states and gain income from high tax states.

The same paragraph could state that "Minnesotans tend to move to less harsh climates and the migration that comes to Minnesota tends to be coming from other Midwestern states as economies ebb and flow."

Nobody disputes the data. But the idea that it must have a tax correlation has been an Republican talking point for decades.

The CFAE think tank does less thinking and more slanting.

Category: Taxes

by Dave Mindeman

Rep. Erik Paulsen is playing corporate Santa Claus.

In the budget deal that was just announced there is a provision to suspend the Medical Device Tax for 2 years.

I am still searching for a legitimate reason why this corporate giveaway is needed. Let's take a look at the propaganda...

The U.S. House and Senate are poised to suspend a sales tax on medical devices for two years after intense lobbying on behalf of the medical technology industry that employs tens of thousands of people in Minnesota.

The lobbyists always frame their request in terms that their industry "employs tens of thousands of people in Minnesota". While this is true...is there any evidence that those employees would benefit from this corporate break? I have not seen any yet. I have seen enormous benefits for companies like Medtronic which received a $9 billion windfall for its merger with Covidian. Again, with little evidence that employees benefit.

So what is the benefit?

"This is a significant breakthrough," said Chris Swonger, government relations chief at Plymouth-based Smiths Medical. "This is a move to reinvest in innovation."

The tax package deal already has a research and development tax break in it. I have yet to see where stopping the Medical Device Tax will in any way ramp up more research and development. In fact, these companies have to keep increasing R&D or their business model fails.

Here is another talking point.

It is a tax on gross sales, not profits. Critics, including Klobuchar, argued that it pushed investment in medical technology to other countries

With all due respect, Senator Klobuchar, I would like to see any evidence of that. I mean real hard evidence. If device makers here see a competitive threat, they simply buy them out.

Here is another one....

Device tax opponents also profited from recent analyses by the Congressional Budget Office that the Affordable Care Act (ACA) is going to cost $176 billion less to implement over 10 years than had been expected, Klobuchar said. The downward shifting estimate offered wiggle room in negotiations with the White House.

Would someone please give us a true picture here? Is the ACA bankrupting the economy? or is it saving us money? Everybody seems to have a nice selection of the facts that suit their purposes. I would like to hear Paulsen use that "the ACA is a cost saver" argument in his next pitch.

This provision is just a small part of a huge budget deal, so if it stays in the conference bill, it will probably pass and Obama will sign it, because there are so many layers, it would be impossible to single out any one provision.

So Paulsen can tie this up in a pretty little bow and put it under the Repeal the Device Tax tree and proudly state.....

See donors? You got your money's worth!