First things first: Charlie Quimby of “Growth and Justice” and Dave Mindeman of MnpACT are two of a small, select set of Minnesota liberal bloggers who needn’t be under police surveillance or at the very least restraining orders. I’m just giving credit where it’s due (although the idea that a group can be named “Growth and Justice” yet still stand for neither is just a tad bemusing).
But over this past week, both of them assailed Rep. Pat Garofalo’s statement on this past week’s “TPT Almanac” program; the Lakeville Republican claimed, in what struck me as a bit of hyperbole, that the broadening of the state’s sales tax to cover clothing will “destroy” border communities like Moorhead.
Always on the lookout for hyperbole to dissect, Mindeman and Quimby were on the job pronto.
Quimby was – as is his unfortunate wont – dismissive, in a post subtitled “Do We Believe Our Lying Eyes?”
Back in 2007 when Growth & Justice was presenting its Invest for Real Prosperity tax proposals to the legislature, I recall a member waxing nostalgically about his parents hauling the family across the North Dakota border to buy untaxed clothing in Minnesota.
The point of his anecdote was that if Minnesota lowered its sales tax and broadened its tax base—as economists recommend—this lucrative cross-border school clothing traffic would dry up, with terrible consequences for Minnesota’s border city retailers.
We’re hearing a version of the same tale…This week, Rep. Pat Garofalo objected on TPT’s Almanac: At the Capitol. He reported that a North Dakota Democrat was proposing eliminating the state’s tax on clothing as a form of tax relief.
“Retail businesses in border communities like Moorhead will be destroyed,” Garofalo said, attracting blogger Dave Mindeman’s skeptical response:
Mindeman interspersed some facts with the snark (which is to his style what dismissal is to Quimby’s) in his piece, noting – correctly – that North Dakota has a 5% sales tax, onto which Grand Forks and Fargo lard 2% in city sales taxes.
Oh my God….how would Minnesota compete?…Garofalo loves that flaming rhetoric doesn’t he?
Fact: North Dakota sales tax is currently 5.0%. Fargo, ND which is the booming ND metropolis across the river from Moorhead adds a 2% city tax. So here is the facts. Under Dayton’s tax proposal, Moorhead (which adds no city tax) would be 5.5%. Fargo would charge 7.0% Clothing may be exempt in the future, but Moorhead will still have clothing under $100 exempt as well.
And like most DFLers, Mindeman, like Quimby, can’t resist taking a homer shot at the Dakotas:
But let’s suppose North Dakota finally drops its state clothing tax just when the gap with Minnesota is closing.
Then what? Will Minnesota border towns really suffer? Were North Dakota retailers in the thriving cities of Fargo and Grand Forks suffering in silence all these years?
To which Quimby assents – with, to be fair, an actual study with real numbers:
As the Minnesota legislator said in that 2007 hearing, should I believe you or my lying eyes?…Looking at the literature studying economic activity in response to sales tax rates, I found research that supports the following points:
Response to differences in the sales tax depends on proximity of border communities. In other words, the farther you have to drive to avoid the tax, the less likely you are to do so.
How much does distance matter? A 2010 Utah study of local option sales taxes PDF* that investigated distance as a variable found increasing the tax rate lowers taxable sales (all else held equal) when there is a jurisdiction with a lower tax rate within 5 km, or about three miles. The effect disappears altogether within about 40 miles. This is to be expected for low-cost goods and everyday commodities. But it also appears to hold for expensive major purchases such as new or used automobiles.
All of that may be true.
But the effects of an individual tax like the Sales Tax, and its nuts ‘n bolts comparison with other sales taxes, while potentially interesting and certainly economics-class-fodder, are the trees that help you miss the forest.
For the real comparison between the states’ tax burdens – not just sales taxes, mind you, but taxes across the board – you need to ask yourself a key question:
“What did I see last time I went to the Moorhead/Fargo area?” Or you could fill in the “East Grand Forks / Grand Forks area”, or the “Breckenridge / Wahpeton” area, or for that matter the “Worthington/Sioux Falls” metro area?
For starters, you’d know they’re called “Fargo/Moorhead”, and “Grand Forks/East Grand Forks”, “Wahpeton/Breckenridge” and “Sioux Falls”. Because in every case, the North/South Dakota side is where the action is.
And it’s not just force of habit; it’s not even close. The Minnesota sides of each of these metro areas (or clusters, in the case of Wop/Breck) are sleepy, moribund and dismal out of all proportion to their North Dakota neighbors. They’re not competitors in any meaningful way. They are all sleepy little bedroom communities with highway exits; whatever commerce, dynamism and action is happening in the area is happening west of the Red (or the Bois de Sioux, or County 17, as the case may be).
Forty years of wide tax disparity – Minnesota has the #7 overall tax burden in the US, while North and South Dakota are 35 and 49, respectively) has left a clear choice to all of those places; move west, and keep more of what you have. The choice was more nuanced, of course, 40 years ago – when North Dakota was a sleepy agrarian backwater. Today, with my home state an economic dynamo in both energy and technology, things are a little clearer-cut. And at any rate – as noted by Quimby and Mindeman – fluctuations in the sales tax, or any individual tax, are background noise to the larger effect of decades of disparity; the Dakotas have better business climates; while the western 3/4 of both states are limited by their sparse populations (which is why working on the rigs out in the Bakken pays so very very well), but Fargo, Sioux Falls and Grand Forks are all well-developed cities with young, highly-educated populations and, at least in North Dakota, K-12 schools that are as good as or better than those in Minnesota.
So once you take a step back and stop the pointillistic crabbling about this remark or that individual tax rate, you see that the real issue is the long-term effects overall tax burdens have. As the Dakotas prosper more generally and gain more people and – as seems to be their goal – turn more of that prosperity into tax relief, that disparity is only going to get starker.
Put briefly – the reforms of the sales tax won’t destroy Moorhead, because tax policies took care of that forty years ago. There’s really not that much to destroy. It’d be like harming business in Saint Anthony compared to Minneapolis; who’d know?
So here’s another question: Up until 2 years ago, Wisconsin was addled by governments more dementedly “progressive”, as a rule, than ours. That changed in 2010, right about the time Minnesota seemed to have some hope of shucking off some more of the dross of DFL legislative control. Now, as NPR noted last week – in a report I’ll be going over later this week – Minnesota’s economy is stronger as a whole than Wisconsin’s. But the improvement in Wisconsin since 2008 is dramatic;it’s improving fast, bouncing back from decades of neo-socialist perfidy. What’s going to happen in Minnesota?
What do you think? We’re raising taxes in the middle of a recession! What happened in California, Illinois and France?
That said – we won’t know what’s going to happen until things tamp down for a while. Will Minnesota’s government remain the shiny toy of Alida Messinger’s band of plutocrat dabblers and union fixers? Will Republicans retain control in Wisconsin? If so, give it a few years. Then we’ll check back.
As to Fargo versus Moorhead? That train left the station decades ago. Changing the sales tax one way or another is just bouncing the rubble, as it were.
