An Interview with Revenue Commissioner Myron Frans

(C) Tax Analysts 2013. All rights reserved. does not claim copyright in any public domain or third party content. Minnesota’s Three-Legged Stool: An Interview With Revenue Commissioner Myron Frans by Billy Hamilton Minnesota Revenue Dayton also believed tax fairness had been eroded Commissioner, Myron by the shift in the tax mix. Frans said that the Frans, has spent many Department of Revenue prepared an analysis of the hours over the past two state tax incidence that clearly documents the prob- years traveling the state lem. It shows that with the shifting balance among and talking to Minneso- the major taxes, there was a worrisome shift in tax tans about tax policy. ‘‘We incidence as well. ‘‘We’ve published an incidence held 160 meetings in 50 study every two years since 1990,’’ Frans said. ‘‘It’s cities,’’ he told me when been pretty successful at tracking trends.’’ The most we talked recently. By the recent study, released earlier this year, showed that time he was through, he the distribution of tax burden is broken into deciles had met with more than — essentially 10 equal groups divided by income 7,000 Minnesotans, including more than 80 state levels. Middle-income households paid 12.2 percent lawmakers, about a topic that doesn’t receive of their income to state and local taxes, while the top enough calm discussion these days — what is a fair 1 percent paid just 9.6 percent.1 The governor was tax system? convinced the tax system needed to be overhauled to create greater balance. Frans’s favorite prop during his travels was a three-legged stool, representing the traditional bal- When Frans joined the Dayton administration in ance in Minnesota’s tax system between the prop- 2011, it was the first time he had ventured into erty, income, and sales taxes. ‘‘From a tax policy public service, at least in many years. He grew up in standpoint, Minnesota has always relied on the Kansas and earned a bachelor’s degree in sociology three taxes in about equal balance — a third, a at Washburn University in Topeka in 1972. He then third, and a third,’’ he said. That balance created worked as a probation and parole officer for three stability and balance. Over time, though, the bal- years before enrolling at Sam Houston State Uni- ance had begun to unravel. ‘‘Our research showed versity in Huntsville, Texas, where he received a that in 1999, we had a balanced distribution be- master’s degree in criminology. Thereafter, he tween the three taxes — a third of the total each,’’ he taught at colleges in West Virginia and Michigan for said. ‘‘By 2010, the property tax accounted for 40 two years and then returned home to attend the percent of the total, the income tax a third, and the University of Kansas Law School, where he was a sales tax 27 percent.’’ classmate and friend of Kansas Gov. Sam Brown- back (R). Frans explained that the shift was partly a result of changes in the economy affecting the sales tax. Frans entered law school intending to pursue a ‘‘There had been no changes in the sales tax base in career in criminal law but was attracted to tax law a decade,’’ he said. ‘‘Our sales tax covers mostly instead. When he graduated in 1983, he began his goods and not services. While the importance of tax practice at Miller & Chevalier in Washington, services in the economy increased, the sales tax was D.C., which represents large national and interna- stuck and basically static.’’ tional corporations. There, according to one news story, he focused on research and seldom saw clients. The same wasn’t true of the property tax. With Hoping for more direct contact with clients, he the state growing and property values rising, prop- shopped around for a ‘‘good-sized city’’ with enough erty taxes shot ahead of the other two taxes, and the Fortune 500 companies to support a tax practice. In three-legged stool suddenly had three legs that weren’t of equal length. For Frans’s boss, Gov. Mark Dayton (DFL), the result wasn’t acceptable. ‘‘The governor,’’ Frans said, ‘‘believes the tax system 1Minnesota Department of Revenue, ‘‘2013 Minnesota Tax should be more balanced than it had become.’’ Incidence Study’’ (Mar. 1, 2013). State Tax Notes, November 11, 2013 355 State Tax Merry-Go-Round 1985, he landed a job at Gray Plant Mooty Mooty & event hosted by the Center for the Study of Politics (C) Tax Analysts 2013. All rights reserved. does not claim copyright in any public domain or third party content. Bennett in Minneapolis. He worked there for 14 and Governance at the University of Minnesota’s years and then spent 10 years at the Minneapolis Humphrey Institute of Public Affairs (now called firm of Faegre & Benson. Slowly, he developed a Humphrey School of Public Affairs) in September reputation as a ‘‘tax guru’’ — although in a nice way. 2010, Dayton defended his plan, calling taxes ‘‘the Looking for new challenges, Frans left his prac- lubricant for the machine of our democracy’’ and ‘‘the tice in 2009 to become president of Leeds Precision fuel for our social engine.’’ He also laid out his Instruments, a Minneapolis manufacturing com- arguments for why his income tax plan was both pany. After Dayton was elected governor in 2010, necessary to help cure the state’s budget deficit and Frans’s name surfaced on a list of possible choices to the fair thing to do. head the Department of Revenue. Frans met with Dayton called his tax plan ‘‘healthy for a society’’ Dayton. ‘‘We just really connected,’’ he recalled. ‘‘At and a ‘‘moral responsibility for those making tax the end of the interview, I knew I really wanted the policies.’’ When an audience member posed the ques- job.’’ He says he has always liked tax policy, and tion about whether Dayton was engaging in class always wanted to spend some time in public service. warfare, he responded: ‘‘Well, I didn’t start the war. The time was right, and as it turned out, there Back under a DFL governor, Rudy Perpich, and a couldn’t have been a better time for a ‘‘tax guru’’ with Republican governor, Arne Carlson, there was fairly Frans’s background to step into the revenue com- good tax equity. And look where it is today. And I missioner’s job. His boss, the newly elected governor, haven’t had anything to do with any of those poli- had big changes in mind, and they most emphati- cies.’’ cally involved taxes. In 2010 Dayton’s views on state finances put him While Dayton was running for governor in 2010, well outside the political mainstream nationally. it was clear that the state faced serious budget The economy was just recovering from a devastating problems that a new governor would have to tackle. recession, and states were approaching every tax The state’s budget shortfall then was estimated at policy change as though it were a bomb that might $5.8 billion and was later increased to $6.2 billion.2 shatter the fragile recovery into a million pieces. The shortfall’s daunting size was partly a result of Moreover, 2010 was the year of the watershed Red structural problems in the state finances and partly Tide election that swept conservative lawmakers a result of the fiscal cliff created by the end of federal and governors into office across the country and stimulus funding under the American Recovery and fundamentally changed the legislative balance in Reinvestment Act of 2009. The state’s problems, many states. Dayton believed, weren’t temporary. The state had The results in the gubernatorial races that year faced shortfalls in each of the preceding eight years, demonstrate the political mood and show what sort and prior governors and legislatures had failed to of head wind Dayton and his proposals faced. The address the problem. GOP won a net five gubernatorial races, including When then-Gov. Tim Pawlenty and the Legisla- Ohio, Michigan, Pennsylvania, and Wisconsin. They ture, which was controlled at the time by the DFL, also won, for the first time in decades, the governor- balanced the budget in 2010, they relied heavily on ship of Maine, regained the governorships in Iowa, the one-time federal stimulus money and delayed Kansas, and Tennessee, won the governorship of payments to school districts. That ‘‘solution’’ solved New Mexico, and held critical governorships in Ne- nothing. It simply papered over the problem tempo- vada, Georgia, Texas, and Florida. Many of the new rarily, and the situation Dayton inherited wasn’t governors came to office promising to cut taxes, promising. In December 2010, Steve Sviggum, sometimes radically, to boost jobs and investment. Pawlenty’s commissioner of management and bud- Higher taxes were on the agenda in at best a handful get, described the state’s fiscal situation as ‘‘unfin- of states. ished business,’’ and noted the structural problems Minnesota often goes its own way, and in 2010, it that lay ahead. He had no ideas to offer. ‘‘The did so again, electing Dayton with 43.6 percent of Legislature and the governor have played all of the the vote out of field of candidates from seven politi- cards that are available,’’ he said. cal parties. Dayton beat Republican Tom Emmer, Well, not all. Running for governor, Dayton called who came in second, by fewer than 9,000 votes for higher taxes to fix the structural problems and statewide. By the same token, the Legislature, proposed taxing the wealthiest Minnesotans to pro- which had been controlled by the DFL, was turned duce the revenue needed to fill the budget gap.

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