Sen. Julianne Ortman’s own words are frightening. Here’s what I’m talking about:

We can and should raise some revenues to make targeted tax reductions that will help to stimulate the state’s economy.

For that reason, I proposed a tax increase this year; we should change our tax code to charge a tax on all lending institutions and other businesses that extend credit to Minnesotans and charge an APR interest rate in excess of 15%. Lenders and others may still charge whatever interest rate they would like. Those that charge less than 15% interest will be unaffected. On those transactions where they charge more than 15% they should pay a tax of 30% on that portion of the interest that exceeds15%. If, as a by-product, lenders reduce rates or reform lending practices, then so much the better.

But let’s be honest, 15% should be more than enough interest in an economy when banks can borrow at the federal
funds rate (0.25%), and the prime lending rate hovers at 3%.

My first question to Sen. Ortman is simple: who made Sen. Ortman the arbiter of what’s enough and what’s too much? My next question is equally simple: does Sen. Ortman realize the effect this proposed surtax would’ve had had it been signed into law? I suspect she didn’t. John Spry is one of the best tax economists in Minnesota. He wrote a study about what this legislation would have. Here’s the conclusion to Professor Spry’s report:

4. Conclusion
Minnesota’s proposed thirty percent surtax on consumer interest in excess of fifteen percent would create a highly regressive tax. Since the surtax is imposed only when consumers carry balances over fifteen percent, only the 11.8% of households with these loans would directly feel the burden of this surtax.

Sen. Ortman’s proposed tax is highly regressive because lower income people are more likely to have a high interest rate on their credit cards and because they’re most likely to carry a balance on their credit cards.

The effect that this proposed surtax would’ve had would’ve hurt low income people who would’ve been hit with lower minimum monthly payments. These low income people would’ve also gotten hit with a higher interest rate as a direct result of Sen. Ortman’s proposed tax increase, meaning low income people would’ve paid more to pay off their credit card debts.

Here’s another astonishing thing from Sen. Ortman’s website:

So let’s have the conversation at the capitol….who should pay for the State’s budget deficit?

Apparently, Sen. Ortman didn’t realize that imposing this surtax would force the poorest people to pay for Minnesota’s deficit. This graphic shows who gets hurt most by Sen. Ortman’s proposed tax increase:

This graphic shows that the lowest income people are hurt most by the tax on lenders. This graphic shows what happens to interest rates when this tax is implemented:

The graphic shows that interest rates would increase significantly if Sen. Ortman’s tax was implemented. If Minnesota implemented this surtax and the interest before implementation was 22%, the post-implementation interest rate would jump to 25%. As a direct result of that, the size of the minimum payment would jump. That would make it more difficult for low income people to a) make that minimum payment and b) pay off their credit card debt.

It’s better to think things through than blindly proposing a populist-sounding policy.

Technorati: , , , , , , , ,

2 Responses to “Sen. Ortman’s frightening tax policy”

  • J. Ewing says:

    Even more frightening, NOBODY should “pay for the State’s budget deficit”! There isn’t insufficient income, it’s a problem of excessive spending!

  • Gary Gross says:

    What’s frightening is thinking that Sarah Palin called Sen. Ortman “a conservative champion.” If I had the opportunity, I’d ask Ms. Palin “Based on what”?

Leave a Reply