Glenn Gruenhagen (R-Glencoe) is mostly known outside of Sibley County for his anti-Kinsey rants, pro-castration sentiments and bills mandating garden clubs for the incarcerated. Today, however, his cacus released a YouTube in which the conservative legislator implies that Minnesota's small businesses typically pay 50 cents of every business dollar goes to taxes and "regulatory costs."
And that will send them fleeing to Singapore.
The anecdote at the end of the world
Here's what Gruenhagen says in the Youtube (below):
First, I'd like to give one more example of why I think we need to have government live within its means. Recently, I was able to meet with a small business owner here in the metro area. He started his business in his home and today it has grown to where he has employed 150 employees and he has sales worldwide. I was able to visit his business and observe how the business works and also observe several other things about the business.
One of the interesting things that he shared is that of every business dollar, about 50 cents of that dollar goes for state, federal, local and property taxes, also regulatory requirements here in the state of Minnesota.
So think about that, 50 cents of every dollar he handles from a business standpoint goes toward those expenses and ultimately has to be added to the price of his product, from which he has to compete nationally and globally.
Ok, he gets calls regularly from neighboring states with a lower tax burden and also less regulations to move his business out of Minnesota to one of the neighboring states. He also gets calls from overseas regularly. One of the examples he shared is Singapore. He could move his business to Singapore tomorrow and his cost per dollar for taxes and regulations would go from 50 cents to 17 cents.
Now let's assume that he has 50 million dollars worth of sales--I'm not sure what type of sales he has, but let's just assume it's 50 million dollars a year. Well, if you're a business owner and you look at your bottomline and you can have 17 cents of a dollar applied to taxes and regulation versus 50 cents and then look at the cost of your product and competing nationally and globally, it doesn't take too long to figure out that it would be much more profitable to move your business to a different country or a different state and your profit margin would grow dramatically and also the competititveness of your product would rise dramatically.
So this is the point we're at in Minnesota. We have to decide if we have government live within its means or if we want to continue to raise taxes and see many of our job creators be forced due to competition nationally and globally to relocate and move outside the state...
All that from talking to one metro-area business owner. There's more, but you get the drift.
One business might see better profits from moving to Singapore. Implied in Gruenhagen's statement? That this business owner's situation is typical.
How typical is this business? No details? No telling
Unfortunately, Gruenhagen doesn't share enough about the business for anyone to be able to discern much about the information he heard from the business owner. Is the business a sole proprietorship? An S corporation? Is it in an industry that reasonably can expect regulation (say nuclear technology, where the state and country have clearly legitimate interest in keeping an eye on that stuff)? Is it located in a community with high property taxes? A local sales tax?
Is the specific business in any way typically of a small business in Minnesota? And yet, Gruenhagen and his caucus, which produced and posted the video, expects the citizens to be swayed and embrace this logic, based on this one anecdote about one business we know nothing about.
Experts wants real details
I contacted a tax expert about information in the video, who shared it with several others, and they all expressed concerns about policy making by emotion and anecdote. The sense was that the claim about the business's costs given to taxes and regulation is, as I note, difficult to verify in the absence of specifics.
However, the 50 percent claim could conceivably be true for a business that is very profitable and thus subject to the highest federal corporate income tax rate (or to a pass-through business in which the owner/proprietor is claiming a high level of income) or involved in a business with a lot of regulatory costs. The business owner's story--told to Gruenhagen and passed on by the Glencoe lawmaker, could be true. No way of knowing though--we're supposed to take a secondhand version as gospel, and generalize from a vague account of one businessman's experience.
However, the experts noted that, for these businesses, most of the tax comes from the federal level; there is nothing that Minnesota can do about federal taxes or federal regulation. Should Gruenhagen run for congress?
Furthermore, while the 50 percent could conceivably be true for some businesses, it is in all likelihood not typical. Regarding Gruenhagen’s claim, my sources didn't think it wise to base state tax policy on unverified claims of high tax levels for a business on which we have no information, especially when most of the tax load is probably the result of federal actions.
Gruenhagen: Vague story sheds "real light"
Gruenhagen's Youtube arrived to his enewsletter list with this cover email:
Dear Neighbor,
You may have heard me talk about how important it is to make Minnesota a better place to do business.
Reports show our business climate is among the nation's worst and I recently spoke with a small-business owner from the metro area who broke things down into simple dollars and cents. The numbers are astonishing and they shine some real light on how significant our disadvantage is.
Click here for a short video where I share the details.
Sincerely,
Glenn
Ah yes, that horrible Minnesota "business climate."
How bad is that business climate? That tax burden?
One of my sources passed along two studies from Ernst & Young via the Council on State Taxation.
· Competitiveness of State and Local Business Taxes
In this study, Minnesota was found to have a very competitive effective tax rate (ETR) on new investment. The second is:
· FY09 Business Tax Burden Study
Minnesota? Check it out.
Mostly, we Minnesotans need real details--not just Gruenhagen's charming campfire urban legend about the Singapore Seventeen Percent Offer.
Here's the YouTube:
Photo: Glenn Gruenhagen, R--Glencoe.
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