In a departure from his no new taxes policy Governor Pawlenty has proposed a cut in the Renters Credit of 21%. Of course, a cut in a tax credit is just another name for an increase in tax. This new tax is aimed solely at those at the bottom of the economic ladder. The Minnesota Renters Credit is limited to renters earning less than $50,430 a year, so is the new tax. But the plan is worse than that. Because the credit has been designed to decrease as income rises, the proposed new tax will be higher, the lower the income. For example, a renter earning $28,000 a year and paying $5,000 a year in rent will lose $57, while the same renter, if earning half that income, will lose $147. The poorer you are, the more you pay.
It is encouraging that the governor is finally admitting that there is no such thing as a free lunch. Fiscal responsibility requires that the state budget be balanced. More tax revenue is needed. One might question the wisdom of seeking that revenue from the economically stressed housing market, which is already burdened by the recent shift in the costs of government from the state to local property taxes. But even assuming the prudence of this choice, why not cut the deduction for mortgage interest instead of focusing on renters? The credit cut, aka tax, could be indexed for income and/or value of the house to avoid an undue burden on those in economic peril. But there can be no moral excuse for a tax exclusively tailored to hit the poor, the disabled, seniors, and those teetering on the brink of homelessness.