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Central Planning Slips Into Tax Negotiations in St. Paul

April 5, 2002

As the House and Senate negotiate toward an agreement on the tax bill in St. Paul, a significant measure toward the planned economy/workforce/education system has been slipped into the omnibus bill in the Senate, with no public hearings and little awareness on the part of most legislators.

(See our overview of the system, "US Embraces State Planned Economy")

This email addresses SF3127, a measure added to the Senate tax bill, and now included in the House/Senate conference committee.

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SF3127 began as a comprehensive plan, peddled as a boon to the rural Minnesota economy. The practical effect of SF3127, however, will be the opposite. As a result of this plan, rural Minnesota would be hard pressed to attract vibrant, innovative companies capable of providing prosperity to local rural economies. As originally introduced, SF3127 is an important piece of the planned workforce/economy/education system of which School-to-Work and the aligned Profile of Learning requirements are an intrinsic part.

Senator Don Samuelson's SF3127 did not pass a single Senate committee. When it was first heard in the Senate Tax Subcommittee, it met with some pointed skepticism and protracted questions. Consequently, it was quietly laid aside. No vote was taken and no alternative testimony was provided. In fact, the three-day public notice provision was once again ignored.

A stripped down version of SF3127 was neatly folded into the huge Senate omnibus tax bill, with not a single public hearing and no House companion bill. The public -- and most legislators -- are in the dark about the policy implications of SF3127, but it is now part of the House/Senate tax conference committee negotiations.


What Does SF3127 Do?

The original SF3127 painted the picture of where this plan is headed. SF3127 set up a new comprehensive system of government planning and control of the economy in rural Minnesota.

It grants state appointed agencies authority to determine which businesses, and their investors, receive privileged economic favors, according to the Workforce Development plan set up by the federal Workforce Investment Act. This is the kind of economic central planning that MELT (the newly proposed Minnesota Economic Leadership Team) is being created to oversee. (See our update on MELT. MELT has been derailed for this session, thanks to public imput.)

Under SF3127, the Commissioner (of Trade & Economic Development) will determine which businesses are "Qualified Businesses." A business is eligible to be "Qualified" if it (1) sets up in rural Minnesota, (2) invests at least $5 million, (3) creates at least 25 new jobs, and (4) is part of a qualified industry

"Qualified industries" are the industries that the central planners have determined, per a MELT-type organizational framework, to be the businesses and industries allowed to be successful in Minnesota. MELT sets up "new" central planning of our state economy.


Free Market Economy "No Longer Functional"

According to the Transition Plan (January, 2002), 21st century changes: "point us to a new role for government in working with the economy -- yesterday's tools can no longer function toward ensuring the economic vitality of tomorrow." (p. 6)

The old free market economy model left it up to entrepreneurs to sniff out what sort of market or service they figured was worth their financial risk. Individuals made free choices with their own money to take a stab at success. That model has served our nation remarkably well.

The new central planning model has government appointees pre- determine success, then they tax all other businesses to ensure that the favored industries will "succeed."

By the way, in this central planning model, schools supply free or reduced-cost state certified workers for the local qualified industries. That is School-to-Work, Small Learning Communities, Career and Technical Education, Schools Within a School, or whatever other current buzzword is in use.

In SF3127, the Commissioner is delegated the authority to waiver tax obligations, something that has always been the responsibility of elected legislators. This unconstitutional delegation of authority was noted to the legislature by the Minnesota Department of Revenue! Imagine, it took Minnesota's chief tax collectors to point out this drainage of power away from our elected officials! Appointed governance takes a breathtaking leap forward in this plan.


How the Central Plan Works for Targeted Businesses

To truly understand the practical effect of the word "qualified," replace it with the words "government subsidized and preferred."

Qualified businesses are eligible for a credit against their income taxes for 10 years, up to 100%.

Interest income to financial institutions which extend loans for the purchase of "qualified" property is not considered taxable income. "Qualified property" is property that is used by a "qualified business."

The Commissioner may award to a "qualified" (government subsidized and preferred) business credits against the NEW taxes that the Commissioner will impose to administer this system. If the credit granted to the "qualified business" exceeds its liability for taxes, Refunds will be issued to the "qualified business" from the general fund.

This operates like the earned income credit which works to guarantee a minimum income for families. This plan would guarantee business survival to government subsidized and preferred businesses.

Qualified Investment Network Funds that make investments in a "qualified business" may be certified by the Commissioner for credits of $250,000 per year. If their investments exceed the limit, the excess is carried over for up to 15 years. The Commissioner (government) certifies 10 "qualified funds" to be dispersed throughout the non-metro area.

A qualified investor who purchases stock from a "qualified business" is allowed an income tax credit of 25% of the amount invested, up to $50,000 per year.

A partnership ("pass though entity") that invests in a "qualified business"is allowed an income tax credit of 25% of the amount invested, up to $750,000 per year.

Investors must apply for their "qualified" status with the Commissioner. Unused credits that exceed the amount of income tax owed may be carried over for 5 succeeding years.

Qualified Business Equipment is eligible for a 7.5% credit against the income tax of the purchaser. "Qualified business equipment" is business equipment used by a "qualified business."

Property taxes of a "Qualified Business" may be abated for 20 Years!

This means that the government subsidized and preferred business will pay no taxes for up to 20 years. This is quite a plum! All non-preferred businesses will see their taxes increase in order to pay the "preferred business" tax share, but also to pay for the additional government subsidies paid out to those preferred businesses!

SF3127 comes out of the many planning documents that have been put together to restructure our economy along a central planning model.

"Building a Knowledge Economy": "Building a Knowledge Economy for Minnesota's 21st Century," by the Economic Working Group, December, 2000, for example, lists the "industry clusters" that Minnesota's central plan has determined will succeed in Minnesota. They are the same businesses listed in SF3127 that define a qualified business.

Under "Build critical mass...in significant industry clusters," the Report calls for linking "small business to industry clusters in rural and inner city communities." Who could imagine what the central planners really meant by that statement? In SF3127, we can see clearly what they meant.

Under the initiative "Build a state economic development policy and coordinated strategies that encourage businesses to expand and locate in Minnesota," the Report calls for an alignment of state programs to "enhance industry clusters." They recommend "strategic standards and criteria to guide economic development activities." Who would know that this guidance would constitute the state government in control of the rural economy?

Transition Team Report:

"Putting It All Together," the January, 2002 Report of the "Transition Team" appointed by the legislature, states on p. 18:

"Industry Networks":

Previous reports...have identified Industry Clusters as a cornerstone of a "Statewide Economic Strategy."

"Public investment should be organized around industries and networks...which are consistent with regional plans.

"...industry networks should become the state's organizing structure for industry growth and development and education policies at the state level." [Emphasis added.]

The first principle of the Transition Team report was that regional plans will be accountable to a state (and federal) plan: "A public accountability system measures local contributions to regional plans and performance in meeting statewide strategic outcomes. Local and regional efforts add up to meeting statewide goals." (p.7)

SUMMARY:

SF3127 is an important segment of the comprehensive government central planning restructuring that is driven by federal law, the Workforce Investment Act, and which aligns economic and workforce central planning with education outcomes.

The bill was stripped down to consist of property tax abatements for 20 years, for "qualified businesses" in "qualified industries" It also includes the 10 certified "qualified" network investment funds worth up to $2.5 million per year in credits to "certified" investments.

HR3127 is now folded into the Senate omnibus tax bill (SF3436) and it will be part of the conference committee negotiations with the House. These items are in Section 17, Sections 4 and 17.

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