Opinion: Some budget solutions are a breeze

Saturday, May 7, 2011

It turns out that there's quite a difference between, say, ending the sales tax exclusion for grocery purchases, which would sock the poor and middle class, and ending it for legal services, which are more like yachts.

Or ending the income tax's working family credit, which plainly helps the poor, and the exclusion of interest income from state and local government bonds, which lower-income people typically don't buy.

That bond income exclusion deprived the state treasury of $114 million in 2010-11. It belongs at the top of legislators' "junk it" list, argues University of St. Thomas associate professor of business economics John Spry.

Eliminate it, and government bond interest rates would rise. Governments would pay more to borrow. But the tax exclusion denies government more than those borrowing costs.

Spry says it also invites excessive borrowing. "If you said you wanted to give LGA [state aid] to the municipalities that run up the most debt, you'd be run out of town. Yet that's what we are doing with this exclusion," he said.

This and other "tax expenditure" policies do something more. They raise the taxes paid by everyone who can't benefit from them.

Read more: http://www.startribune.com/opinion/otherviews/121416584.html

Originally published: 05/07/2011, Star Tribune