According to the list provided by KSTP Mark Dayton’s tax proposal will have businesses fleeing for the exits and the Minnesota economy circling the drain.
On the very surface, a 5.5% tax on services seems fairly harmless. If you spend $10 on a haircut, it will now cost you $10.55, and the State will get $2.1 billion more to spend. Not that big a deal, everyone calm down…right?
Ah, but it doesn’t stop there. (It never does when it comes to taxes)
When that barber shop buys services from other businesses, it will have to pay that same tax, so in order to cover its costs, the barber shop will have to raise their prices by 5.5% to cover the new costs of doing business. So that haircut will likely go from $10 to $11, and your cost will now be $11.61 – for a ten dollar haircut.
Those shrieks you hear all across the state are business owners realizing that if the Governor gets his way, everything the need to run their business is going to cost more. There will be a tax on the window-cleaning service for their office, their attorneys, the guy that plows the parking lot, their advertising, their accountants, travel agents and even the taxi ride to airport when they fly to North Dakota to see about relocating their business to a state not run by a money-grabbing megalomaniac.
Update: After publishing this commentary, I found the ‘official ecnomic term’ for what I was trying to describe. It is called “Tax Pyramiding” and here is a Pioneer Press article by Finance Professor John Spry describing why it is so very wrong.