Minnesota Report

As the 2022 Legislative Session commences today, we see an opportunity for a compromise on taxes would be mutually beneficial to both political parties, but would take a Herculean Lift to pass. In the light of a $7.7 billion surplus, which we have already said we expect to grow to over $8 billion, a tax structure realignment, if the two sides can actually negotiate in good faith, is in the cards.

If the new leadership in the state senate is truly new, in their thinking, and not entrenched in the polarity of the past, then compromise could be possible and ironically, it is through taxation it could come about.

Senate Majority Leader Jeremy Miller (R-28, Winona) has started with standard Republican knee-jerk rhetoric calling for tax cuts, because to them a surplus is merely an over collection of people’s money, but please, it’s not really that simple. As House Majority Leader Ryan Winkler (DFL-46A, Golden Valley) reminds us, tax cuts have a serious downside, have we forgotten the debacle of the 1999 tax cuts? It’s a failed approach because “trickle-down economics” doesn’t work and retooling the collection system by killing the cow, is a losing proposition. Also, here is a sneaky point, we like to bring up, if the two sides fail to agree the current system remains in place, unless there is a structured agreement and we doubt Governor Tim Walz (D-MN) will call a special session on tax cuts if negotiations fail during the regular session.

Any negotiations that take place over takes will need to take place within each majority caucus, but could also occur within each legislative body, because what would be better than to see a solution which has broad bi-partisan support.

Some of the tax cuts, the Senate Republicans have called for is a removal of state taxation from Social Security benefits, and reductions in taxes from wages. If the Social Security cut is done on a sliding fee scale, and the tax cuts for hourly workers and 1099 Contract Workers were to be the recipients, the DFL House Majority is likely to go along, but since this is a revenue reduction or in legislative parlance a “Tax Expenditure,” what will backfill the hole?

We suggest as we have since 2011, the use of Sportsbook to provide a viable state revenue source in lieu of taxes. Minnesota has a well-worn system of taxing vices, but we have allowed those vices to remain in place as well. If our tax structure were to shift to legalization of sports gambling, something already underway as an illegal activity, the state coffers could be the benefactor and a reduction in existing taxation also the result.

As we also learned during the extension of Unemployment to 1099 workers this is a significant portion of our Minnesota workforce, especially the “Gig Economy” and tipped workers.

A trade-off between, tax cuts desired by Republicans and new revenue from a vice, subjected to a significant amount of taxation, is also an approach favored by those with a puritanical moral streak and we believe is the route to pursue. The DFL needs to appeal to their better angels, but also the ones who like Bingo and Pull tabs.

Republicans might not support legalization of Recreational Cannabis, but here to, a significant revenue source through a vice tax exists. Again, the use in our society already exists, and why not capture revenue from the state sanctioned dispensation rather than continuing apply police resources to drug enforcement when other crimes such as car-jacking are underway.

The 2022 Big Negotiation, can occur on these issues if each side is willing to give up something to get something and neither side denigrates the other to get there. Each side has something to lose and something far greater to gain. On the loss side it is mainly political points, but on the gain side it is all Minnesotans who have their taxes reduced and a stable funding source enacted to fund state government.