A hit on Min­nesota cabin own­ers? That’s not the half of it.

Fed­eral pro­pos­als would add to state tax ab­sur­di­ties. The im­pact would be felt across cabin coun­try. Con­tact your sen­a­tors and rep­re­sen­ta­tives. Pound the ta­ble.

Star Tribune - - OPINION EXCHANGE - By JOHN P. JAMES John P. James is a di­rec­tor of Min­nesota Lakes and Rivers Ad­vo­cates. He was Min­nesota’s com­mis­sioner of rev­enue from 1987 to 1991 un­der Gov. Rudy Per­pich.

The Nov. 12 ar­ti­cle on threats to cabin own­ers, com­mu­ni­ties across Min­nesota lake coun­try and their res­i­dents posed by the U.S. House tax bill’s re­peal­ing the mort­gage in­ter­est de­duc­tion for sec­ond homes was ac­cu­rate, but did not go far enough in two re­spects, and this sit­u­a­tion highlights ab­sur­di­ties in Min­nesota’s tax sys­tem and the fed­eral pro­pos­als.

First, the hit on cabin own­ers ex­tends to the state and lo­cal tax de­duc­tion. The House bill lim­its it to $10,000 in real prop­erty taxes only. The Se­nate bill re­peals it. There is no telling how this ef­fort will turn out, but it is not crazy to spec­u­late that the out­come, as­sum­ing Repub­li­cans can pass some­thing with­out a sin­gle Demo­cratic vote, could be that both the in­ter­est de­duc­tion for cabin mort­gages and the state and lo­cal tax de­duc­tion could be en­tirely elim­i­nated.

Sec­ond, all prop­erty own­ers in cabin coun­try, not just cabin own­ers and lo­cal govern­ments, would be ad­versely af­fected. Cabin prop­erty val­ues in­evitably will drop if such changes are made. Be­cause the prop­erty tax op­er­ates by spread­ing the amount levied by govern­ments across the value of all prop­erty in their com­mu­ni­ties, prop­erty tax rates will in­evitably rise, so own­ers of homes, busi­nesses and farms will get ham­mered. Cabin prop­erty taxes will drop be­cause their val­ues will drop, but the higher rate will limit the cut. Lo­cal govern­ments will face an ugly bal­anc­ing act: Do they cut ser­vices so the hit is less or try to main­tain ser­vices and clob­ber all of their prop­erty own­ers?

Cabin own­ers al­ready suf­fer from a Min­nesota tax ab­sur­dity. They, alone among res­i­den­tial prop­erty own­ers, are sub­ject to the state prop­erty tax, which also ap­plies to busi­nesses. The state sucks $43 mil­lion out of cabin own­ers an­nu­ally, sig­nif­i­cant for them, but a pit­tance in an­nual state gen­eral fund rev­enue of $22 bil­lion. There is no good pol­icy rea­son for the state tax on cab­ins, so it should be re­pealed. Re­peal will be more im­por­tant if fed­eral re­form re­sem­bles that de­scribed above.

Now for the fed­eral ab­sur­di­ties, the root of which is try­ing to do per­ma­nent ma­jor tax re­form with one party’s votes. The con­tention that fewer tax brack­ets means sim­pli­fi­ca­tion is ab­surd be­cause tax­pay­ers take about one minute to cal­cu­late their tax from the brack­ets, no mat­ter how many brack­ets there are. The ab­surd part of cal­cu­lat­ing taxes comes from the special low rates that ap­ply to div­i­dends and cap­i­tal gains, which takes much more time and which the bills re­tain.

It is ab­surd to con­tend that a big in­crease in the stan­dard de­duc­tion is a big deal for fam­i­lies. Elim­i­nat­ing the per­sonal ex­emp­tions means, for a mar­ried fam­ily of three, that these two changes yield a net of al­most no re­duc­tion, and for fam­i­lies of four or more a net ad­di­tion, to tax­able in­come. In­creases in some cred­its some­times yield a tax cut, but loss of de­duc­tions and other cred­its some­times pushes to­ward an in­crease. This com­bi­na­tion of changes makes it im­pos­si­ble to gen­er­al­ize about the im­pacts for mid­dle-class Amer­i­cans.

The ex­treme fa­voritism of high-in­come in­di­vid­u­als and busi­nesses is ab­surd in light of taxes for many mid­dle-class tax­pay­ers in­creas­ing, im­me­di­ately or in a few years. The cor­po­rate in­come tax rate is slashed from 35 per­cent to 20 per­cent, a 42 per­cent cut. Un­der the House bill, some busi­ness in­come taxed to in­di­vid­ual own­ers would see a re­duc­tion from 35 per­cent or 39.6 per­cent to 25 per­cent, a re­duc­tion of 28 per­cent or 36 per­cent. Re­form usu­ally in­cludes broad­en­ing the tax base, but these bills of­ten nar­row the tax base, so less of cor­po­rate and in­di­vid­ual busi­ness in­come will be taxed, re­duc­ing taxes still more. And why should joint re­turn fil­ers with be­tween $470,000 and $1 mil­lion in tax­able in­come get a cut from 39.6 per­cent to 35 per­cent, about a 10 per­cent cut for that in­come, when mil­lions of mid­dle-in­come tax­pay­ers will pay more? The same goes for mas­sive cuts in and re­peal of the es­tate tax.

It is ab­surd to con­tend that such large tax cuts will lead to far greater eco­nomic growth, higher wages and re­duced deficits, in light of past ex­pe­ri­ence to the con­trary and the views of most econ­o­mists and ex­pert bud­get hawks like the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get.

Com­pletely nuts is the House bill’s elim­i­na­tion of the med­i­cal ex­pense de­duc­tion while mil­lions of Amer­i­cans have es­sen­tially un­af­ford­able health in­sur­ance and while most Amer­i­cans get health in­sur­ance as an un­taxed ben­e­fit of em­ploy­ment.

So what should Min­nesotans do? Pound the ta­ble. Ask U.S. Sens. Amy Klobuchar and Al Franken and our five Demo­cratic rep­re­sen­ta­tives to put for­ward re­spon­si­ble al­ter­na­tive pro­pos­als. Tax re­form should ad­dress real prob­lems in bal­anced fash­ion.

Con­stituents of Repub­li­can U.S. Reps. Erik Paulsen, Ja­son Lewis and Tom Em­mer are re­ally im­por­tant Min­nesotans now. Their dis­tricts prob­a­bly in­clude thou­sands of cabin own­ers who voted for them, and mul­ti­tudes more sup­port­ers who have less than $10,000 in prop­erty taxes and more than $10,000 in state and lo­cal taxes. These Min­nesotans are likely to get clob­bered in this tax re­form. Con­stituents might ask them to vote no and to pub­li­cize how Min­nesota cabin own­ers come out vs. how the oil and gas in­dus­try comes out. If Paulsen, Lewis and Em­mer vote no, the House bill as drafted might not pass, en­abling Congress to en­act bi­par­ti­san tax re­form.


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