Politics & Policy
Minnesota's Gov. Ventura Takes On The Challenge of Overhauling Taxes
By WILL PINKSTON and RUSSELL GOLD Staff Reporters of THE WALL STREET JOURNAL
ST. PAUL, Minn. -- Minnesota Gov. Jesse Ventura -- political rebel, former professional wrestler, part-time football commentator -- is winning fame for yet another pursuit: trying to overhaul his state's tax system.
Fiscal-policy experts around the country credit him for tackling one of the nation's most sweeping initiatives to revamp state taxes. In between play-by-play analysis for the upstart XFL football league, Mr. Ventura is pressing for an all-out blitz on Minnesota's property, sales and income taxes. In addition to cutting all three levies at once, he is asking lawmakers to extend the sales tax to Internet purchases as well as a broad range of professional services ranging from haircuts to legal work.
He faces an uphill battle; many of the new taxes are unpopular. But if he succeeds, he would reinvent a common structure that many say is rendering states' tax systems inadequate, as the economy increasingly shifts from goods to services.
"Anything of importance in state finance this year is going to be touched on in Minnesota," says Dan Bucks, executive director of the Multistate Tax Commission, a group of states pushing for more-uniform tax codes. Mr. Ventura's plan to broaden the sales tax, adds Harley Duncan, executive director of the Federation of Tax Administrators, a Washington, D.C., association of state tax collectors, "meets most precepts for sound tax policy you'd find in textbooks."
Mr. Ventura, of course, isn't exactly a textbook governor. After confounding pundits by winning the governor's office two years ago as a third-party candidate, he has charged headlong into wide-ranging causes: from sending out sales-tax rebates the past two years to recently trying to get statehouse reporters to wear badges labeling them "official jackals." His style, seen most dramatically in the quest for a tax makeover, is to push his advisers to find answers regardless of political feasibility.
"What kind of nonsense is this?" he thundered one recent day in his Capitol office, ticking off what he considers inequities in Minnesota's tax system, including a maze of sales-tax exemptions extended to some goods and services but not others. But do his wholesale changes have a prayer of passing? "If the legislature doesn't want meaningful tax reform," he answers, chewing on an unlit cigar, "they don't have to do it."
Indeed, lawmakers are hardly lining up to support Mr. Ventura's tax ideas. The political independent faces substantial opposition in both the Republican-controlled House and the Senate, controlled by Minnesota's own liberal version of the Democratic Party, called Democratic Farmer Labor. Detractors question whether wholesale tax cutting is fiscally responsible when a slowing economy is reducing revenue growth. Others warn that tax cuts will cause undue pressure to hold down spending in vital areas such as higher education.
Powerful groups ranging from lawyers to accountants, whose clients would be hit by a broadened sales tax, are whipping up opposition, as some taxpayer groups argue the sales tax disproportionately hurts the poor.
"The politics of it is horrible," says Wayne Simoneau, a former Democratic legislator who has served in the administrations of both Mr. Ventura and his Republican predecessor.
No matter. Pam Wheelock, a former economic-development chief for the city of St. Paul whom Mr. Ventura recruited as his state finance commissioner, concedes conditions might not be perfect for advancing "so many controversial issues at the same time." But for Mr. Ventura, she adds, "political considerations really aren't factors."
Mr. Ventura does enjoy considerable popular support that makes his foes uneasy. A poll in early February by the St. Paul Pioneer Press and Minnesota Public Radio found voters evenly split on broadening the sales tax while cutting property taxes. Among Mr. Ventura's supporters are blue-collar Minnesotans, who like the total of $2 billion in sales-tax rebates mailed out the past two summers under one of Mr. Ventura's favorite initiatives. "People in the VFWs, the beer joints and the coffee shops, they love him," says Mr. Simoneau.
Mr. Ventura, who as a wrestler was known as "the Body" but pledged to become "the Mind" as governor, also has won some respect for his willingness to tackle thorny policy issues. "This guy is a lot more sophisticated than anyone thought he was when he first started running," says Art Rolnick, research director at the Federal Reserve Bank of Minneapolis.
And another first-term governor, George W. Bush of Texas, didn't fare too badly when he proposed massive property-tax relief in 1997, offset in part by broadening another tax, to help the state increase its share of local school funding. Although opposition from groups that would be newly taxed killed his idea, then-Gov. Bush's fallback plan for a smaller property-tax cut succeeded, winning him political points for boldly attacking a complex issue.
Mr. Ventura has been grousing about Minnesota's tax system for years, first as mayor of Brooklyn Park in suburban Minneapolis from 1991 to 1995, then from his pulpit as a Twin Cities talk-radio host. Particularly troubling to him: the belief that local governments can't control property-tax rates because, among other things, constant increases are needed to cover their 30% share of rapidly escalating education costs in the state.
After being elected governor, he vowed to study the tax system before changing it. Instructing advisers to pay close attention to his frustrations over the property tax, Mr. Ventura charged Revenue Commissioner Matt Smith with overhauling the state's entire tax system. "We took it and ran," says Mr. Smith, a 13-year state employee. Revenue Department staffers divided into teams to analyze the state's tax code as if they had been given carte blanche to rewrite it. Eschewing the "blue-ribbon panel" approach to tax reform, Mr. Smith launched a statewide series of public hearings and focus groups, where he found widespread disdain for the property and income taxes but less opposition to the sales tax.
Mr. Ventura, who attended some of the hearings, insisted on updates at least once a week. While the governor generally isn't one to concern himself with details, he can focus sharply when he wants to. "If I quote a number to him, it better be right because he will remember it," says Mr. Smith.
By Labor Day of last year, a plan was emerging: A centerpiece of tax reform would be shifting a greater share of state-mandated public-school costs to the state. (Currently the state pays around 70%; it would carry as much as 85% of the burden under the governor's plan.) That would allow local governments to lower property taxes. At the same time, the state would shave income-tax rates by half a percentage point and reduce the sales tax to 6% from 6.5%.
The price tag of all those tax cuts, along with some other minor ones: nearly $1.9 billion in 2003, according to the Ventura administration. To help offset lost revenue, the governor has proposed extending the sales tax to services and Internet transactions, while maintaining exemptions on food and clothing. Administration officials estimate that will raise $860 million, and Mr. Ventura says revenue growth and a projected $1.5 billion budget surplus in the 2002 and 2003 fiscal years will help cover the remaining amount -- provided the state holds down spending to a level near inflation.
While tax reformers from outside Minnesota credit Mr. Ventura for such an ambitious plan, the proposal is being scrutinized from all political sides within the state. Among the rallying cries: warnings that professional-service providers -- and companies using their services -- will reduce their presence in Minnesota if the sales tax is broadened. Mr. Ventura generally ignores the outcries. He recalls a "sob story" from one estate-planning lawyer about how his elderly clients would face higher legal costs. "Maybe you ought to cut your rates," Mr. Ventura says he suggested.
The governor's tax advisers say it won't be clear until April or May whether lawmakers will adopt any of his proposals. But Mr. Ventura, who says he hasn't decided whether to seek re-election next year, appears unruffled by the prospect of failure. "We're raising the level of consciousness out there," he says. "That's a victory."