Are Minnesota’s tax laws and economic incentive programs sending the same message? The answer is not always, according to Smart Signals: Economics for Lasting Progress, a study released today by the Environmental Quality Board at Minnesota Planning. The study was funded by the Legislative Commission on Minnesota Resources.
Smart Signals found a number of state tax and spending policies that work at cross-purposes.
For example, government spending for affordable housing is neutralized by the property tax and tax code treatment of housing. Without addressing such economic distortions, housing affordability will likely be a chronic urban problem regardless of the amount of money state and local governments devote to the issue.
Smart Signals proposes consideration of an alternative, called site-value taxation, that would support home ownership without penalizing other types of housing.
In addition, the study found that:
1) Efforts to aid Minnesota businesses ignore the environmental performance of potential aid recipients.
2) The state’s air emissions fee system puts small polluters at a disadvantage over big ones, and sometimes leads to increased fees on businesses that reduce their emissions.
3) Taxpayers, homeowners and the environment would be better off if the state focused its dollars on helping homeowners install energy conservation measures, rather than subsidizing home heating bills each winter.
4) Certification of forests as being sustainably managed could be part of a sound economic development strategy for Minnesota’s forested counties.
5) The state could consider increasing transportation system revenues with a combination of fees and taxes that account for environmental damage and increase transportation options including transit and alternatively fueled vehicles.
The study also finds that traditional economic measures give an incomplete picture of how well Minnesota is doing. Smart Signals proposes a new more comprehensive indicator, the Minnesota progress indicator, which recognizes that the health of the economy, our communities and the environment are all linked.
To address these findings, the report recommends that the state:
1) Focus first on removing mixed signals in existing policies before funding any new programs or initiatives.
2) Re-evaluate incentive programs so that incentives contribute to achieving the goal of a healthy, sustainable economy.
3) Adopt a new tool to measure Minnesota’s progress toward a healthy economy, which recognizes that economic health is tied to the health of the environment and communities.
4) Develop a new approach to evaluate economic development grants and loans by checking to make sure that money spent to aid businesses also benefits the environment and communities.
According to Minnesota Planning Director, Dean Barkley, "This report reminds us that policies that once were good ideas can lose their focus. Smart Signals identifies such policies and offers options for updating them."
Minnesota Planning, a state agency, develops long-range plans for the state and coordinates strategic planning activities among all levels of government.