Proposed 'fair tax' would tax money you spend

Lawmakers at the Minnesota Capitol had a healthy discussion Thursday on a popular topic in the shadows of tax day – getting rid of the income tax.

The new proposal is called a fair tax. It is essentially a consumption tax, where instead of taxing the money you make, it taxes the money you spend.

The idea comes from Rep. Steve Drazkowski (R-Mezeppa), who sums it up like this, “It's really a sales tax and what it does is broadens out the sales tax to include many of the items we don’t currently tax with the sales tax and would focus on consumer expenditures, the last expenditure, so any business expenditures, business to business, those would go away under the tax." 

Here's what else goes away: personal income taxes, the corporate franchise tax, industry taxes and a number of excise taxes. All of that appeals to a number of Republican lawmakers.

"If we reduce the tax, when we reduce the cost of something, that consumers will spend more,” Rep. Joe McDonald (R-Delano) said.

But, opponents say wait and think about it for a moment.  It would tax almost everything you buy.

"I have a number of low income seniors in my district and this bill, I believe, would tax their rental,” Rep. Linda Slocum (D-Richfield) said.

Slocum said she worries it would tax their groceries and medicines too.

"Well the response is there's a pre-bate built into the bill,” Drazkowski said. “And so what happens is that the government provides a check every month to offset the basic costs of living for everyone in the state regardless of their income.”

This is a controversial concept.   Even tax chair Greg Davids said he doesn't embrace this idea, but wanted to give it a hearing.

There will be no vote on the fair tax idea yet, but Drazkowski wanted to start the discussion to bring it up again next year.