When You’ve Lost The Strib

The Star-Tribune editorial board brutalized a key component of the Messinger Dayton and DFL tax plan over the weekend.

The editorial starts out with a half-squib…:

We urge Dayton to reconsider and the Legislature to reject a sales tax on business-to-business services, a tax idea the Star Tribune has long opposed. While expanding the consumption sales tax to a larger share of the economy and reducing its overall rate, as Dayton proposes, is sound tax policy, taxing businesses’ service inputs is anything but.

The lowering and broadening the sales tax is a fine idea, but broadening it to the point where it takes $2.2 billion more out of the state economy during a recession is just plain stupid.

But taxing business services?

Messinger Dayton may have done the impossible:  forced the Strib and me into a common cause.

We’ll get to the common cause.  First, the Strib accurately describes the inevitable consequences of this tax plan in a way they never did with the Governor’s personal or political record, which shows, I guess, their priorities, but better late than never I guess:

A tax on business-to-business services would distort the choices businesses make about purchasing or keeping in-house accounting, legal and computer services. It would favor large companies with big back-office operations over small firms. It would put Minnesota engineering, architectural, scientific and consulting firms at a disadvantage. And it would turn the sales tax into a price inflator of every Minnesota-made product through a process economists call “tax pyramiding.”

For example, a law firm would pay tax on its cleaning service, and add that cost to the legal bill it sends to a trucking company, which would pay tax on that bill and pass the cost on in its charges to a farmer, who would pay tax yet again on the whole accumulating amount. At that point, the state’s long-standing policy of not applying sales tax to food will have faltered.

To answer the inevitable question:  of course the Strib editorial board is acting in its own enlightened self-interest:

Consider the impact on one particular industry sector — one this Editorial Board serves and understands well — advertising, information and communications. Providers of those services together employ nearly 68,000 Minnesotans. Many of them serve clients outside Minnesota and compete with rivals around the country and the globe.

The American Association of Advertising Agencies ranks the Twin Cities ad industry ninth-largest nationally and second-largest in the Midwest. It reports that none of the top eight markets have a tax commensurate with the one Dayton proposes. A cautionary tale can be found in Florida, where in 1987 a sales tax was placed on advertising and a range of similar services. An advertising boycott quickly ensued. So did a repeal of the tax, only six months after its passage.

It could certainly happen here.  Of course, the spending that’s being matched with that revenue under the Messinger Dayton / DFL budget won’t get repealed any time soon…

But here’s the issue where, for the first time ever, I find myself on the same side of the barricade as the Strib:

More than large enterprises would be affected. Sole proprietor David Aquilina, a “strategic storyteller” whose PR business is based in Minneapolis, said he would be contractually obliged to absorb all of Dayton’s proposed 5.5 percent tax.

“I will have to pass along the full cost of the tax to my employee: me,” Aquilina said. The proposed tax “would effectively impose a 5.5 percent cut in the top-line revenue of my business and in my income.”

The tax would apply to lawyers, accountants, cleaning services, networking jobbers, PR flaks like Aquilina – and freelance IT architects like yours truly, who frequently work “corporation to corporation”, and have nobody to pass the cost of the tax on to.  And it will favor the big IT solutions shops, who can absorb the extra top-line costs and pass them on – although they won’t be much happer about it that…

…I almost choke to say it…

…the Strib and me.

10 thoughts on “When You’ve Lost The Strib

  1. This is hardly a surprise. After all, liberats are always in support of taking other people’s money, so when it actually bites them in the wallet, they cry foul!

  2. The hypocrisy is blinding, but more shocking is the confidence the Star&Sickle has in the stupidity of it’s low information readership that guarantees they will never twig it.

  3. I want to know what Dayton’s med protocol is. Is his doctor aware that he has created a non compes mentes? I suspect his doctor is probably “on staff” with an office down the hall and a cushy state pension.

  4. On another note…..many liberals say they want to make it impossible to walk into a department store and purchase amunition. Mission Accomplished.

    I was in an east-metro Wal-Mart on Saturday. Out of curiosity, walked by the ammo case. It mostly empty. Two people (a lady and a guy) were there looking into it, and one said to the other “It’s like this everywhere”.

    I always say Sioux Falls, Fargo, and Wisconsin development agencies should fund Minnesota Democrats. I wonder if ammo manufacturers are happy as hell that Obama is in office and Democrats control the state legislature.

  5. Mitch, you really aren’t on the same side as the Star-Tribune. You realize the new tax proposal is bad for Minnesota businesses.

    The Star-Tribune just doesn’t want to pay taxes themselves. They don’t really care about anyone else. Remember the old saying about communism…..everyone is equal. Its just that some people are more equal than others.

    If Dayton modifies his proposal to remove printing and advertising, than the lefty paper from Mpls would be talking about how great these “new revenues” are.

  6. The mendacity of the RedStar Tribune is really stunning. When it turned out that they might gain financially from building Zygi’s Pleasure Palace, they were on board faster than Fred Smoot boarding the Love Boat.

    When Governor Messinger’s tax plan doesn’t sit well with them, suddenly they pretend to give a tinker’s damn about Minnesota business.

    Shameful.

  7. I had never heard the term “business-to-business services tax”.

    After reading the Strib’s hypothetical of cleaning company-law firm-trucking company-farmer-food consumer, I just realized what it is. MN is trying to implement a VAT (value added tax).

    I don’t know how many people in the state (or country) know how incredibly BAD a VAT is, but manufactured items are horribly overtaxed in the European countries that have it.

  8. A tax on business-to-business services would distort the choices businesses make about purchasing or keeping in-house accounting, legal and computer services.

    Except that the current tax code (e.g. payroll taxes) and the employer mandate for health insurance and a myriad of other employment laws already create a distortion that encourage business to outsource these jobs to consultants/independent contractors.

  9. “Except that the current tax code (e.g. payroll taxes) and the employer mandate for health insurance and a myriad of other employment laws already create a distortion that encourage business to outsource these jobs to consultants/independent contractors.”

    A perfect example right here in MN, were all of the road and bridge construction projects that Lunda Construction of Black River Falls, WI received from MNDoT over the years. Initially, it was the difference in workman’s comp between MN and WI that would get them the contracts, but going forward, it will be a myriad of things.

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