(I promised a post on the VAT, but it will have to wait a little longer.)
Overheard in the Mercedes showroom:
First customer: Isn’t it a crime that Mercedes and its dealer network, too, have to pay Minnesota income taxes on the profit they make selling these beautiful cars? BMW, and even [shudder] Acura, too.
Second customer: Well, the jewelry companies have to, too.
Third customer: With the brokerage commissions I’ve had to pay on stock and bonds this year, I’ll bet those rascal brokerages are going have to pony up as well!
Car salesman [shaking his head]: It’s so regressive. That’s what Todd Rapp says, anyway.
First customer: I think I heard that Growth and Justice thinks that, too!
Car salesman [still shaking his head]: Whatever was the state of Minnesota thinking?
The prospect that Mercedes USA and a Minnesota selling dealer will have to pay a little into the kitty here in Minnesota when they sell that Autobahn pleasure boat doesn’t really bother me at all.
But the canard that business taxes are all regressive has gained some currency; if you follow the link to the Growth and Justice website article on the subject, you will see that G&J has a graphic that purports to show that businesses “shift” their taxes to their consumers, and to their employees, and only as a last resort to investors.
But describing it this way borders on the moronic. It is more accurate to say that businesses strive to minimize their costs, to pass their costs along to their customers in the prices they charge, and they do that to maximize the return to their investors.
But Rapp and Tom Horner and G&J, too, want to wrap business tax policy up in some nefarious “tax shifting” mantra to make the reduction of business taxes more palatable.
But “progressive” and “regressive” aren’t really even useful words in this discussion, certainly not in any macro sense.
If Mercedes USA pays some income tax as a result of selling cars in Minnesota to affluent customers (who probably got that way because of the nurturing environment they grew up and were educated in, or maybe they just inherited it), and that tax is what puts the budget revenue up to where we can pay for some GAMC, how is that regressive? It is hard to feel too much sympathy for the car buyer who has to pay more because Mercedes “shifted” its income taxes onto the consumer.
There is a flip side, of course. The poor, elderly man or woman who pays a penny more for five cans of condensed soup because of the bullies at the Minnesota Department of Revenue collecting income taxes from soup manufacturers.
But Rapp, Horner, and G&J make no distinction between the two cases: they are both cases of the iniquitous thing called “tax shifting.” It beggars the imagination.
At least G&J proposes way to plug the gap created by the loss of business tax revenue. Among the solutions proposed, G&J says we should broaden the base of the sales tax to include most services.
That way, the poor old man in our example can take his penny savings on the soup and put it together with sixty or seventy more pennies to pay the sales tax on the haircut he gets.
NB. This is the fifth post I’ve done this week on the subject of the Minnesota corporate income tax and the hare-brained initiatives to eliminate them. Rather than repeat links to the first four, please know that you can find them in the Blog Archive in the sidebar for February 2010, and they all have a title that starts with “Corporations should say, not pay,” or “Hey, Sailor, c'mere; you want a free one?”