Tax Polluters, Not Families and Businesses

Revised February 1998

Minnesota’s proposed pollution tax-shift is the most positive state initiative in the country addressing the problem of global climate change.
Denis Hayes, Founder, Earth Day 1970, President of the Bullitt Foundation, Seattle, Washington

…sound economic analysis shows that there are policy options that would slow climate change without harming American living standards, and these measures may in fact improve U.S. productivity in the long run… The revenues generated from such policies can effectively be used to reduce the deficit or to lower existing taxes.
From Economists’ Statement on Climate Change. Endorsed by over 2400 Economists including six Nobel Laureates

The Economic Efficiency and Pollution Reduction Act of 1998 (EEPRA)

S.F. No. 1110

Sen. Steve Morse
Sen. Gary Laidig
Sen. Ember Junge
Sen. Steve Novak
Sen. John Hottinger


H.F. No. 1190

Rep. Ann Rest
Rep. Dennis Ozment
Rep. Dee Long
Rep. Jim Rhodes
Rep. Henry Kalis

The Economic Efficiency and Pollution Reduction Act of 1998 completely eliminates school district’s general education property tax levy and finances it at the state level through a tax on pollution.

Key Elements:

  • The elimination of the state General Education Property Tax levy
  • A 60 percent reduction in the school district portion of property taxes and an average reduction in overall property taxes by about 25 percent
  • An increase in the percentage of rent paid that is considered property tax. The current 18 percent rate is raised to 25 percent. This translates into approximately a $40 million increase in property tax refunds for renters
  • A pollution tax imposed on all fossil fuels and electricity consumed in Minnesota that will raise $1.3 billion per year(five-year phase-in)
  • An exemption for renewable fuels like wind, biomass, hydro-electricity and ethanol
  • A partial, conditional exemption for energy intensive businesses when they invest in pollution-reducing measures

Public Investments in Efficiency:

  • $50 million to establish a revolving loan fund to finance efficiency improvements in energy-intensive businesses
  • $20 million for low-income weatherization
  • $20 million annual appropriation for low-income fuel assistance
  • $14 million for transit operations
  • $16 million for bridge repair

Why A Tax Shift?

Becauseit’s what Minnesotans want. A recent in-depth poll found that a majority of Minnesota voters support a tax shift that imposes a tax on pollution in exchange for a proportionate decrease in property taxes. Support cuts across traditional party and philosophical lines. Support was high and nearly identical among Democrats and Republicans, liberals and conservatives.

The number one tax Minnesotans want reduced is the property tax. A key concern of Minnesotans is the potential deterioration of the quality of their water and natural environment. The proposed tax shift addresses both issues. It forces polluters to pay for the damage they create while offering significant property tax relief to Minnesota households and businesses.

Benefits of the Tax Shift

Ourcurrent tax system encourages inefficiency. We impose significant taxes on “goods”, that is, activities or things we would actually like to encourage, like work or income or property. And we impose low or no taxes on “bads”, activities we would like to discourage, like pollution or resource inefficiency. The tax shift bill restructures a portion of the state tax system in order to lower pollution, reduce property taxes, expand employment, accelerate economic growth and boost homegrown renewable energy industries.

Recent studies of the impact of the proposal on the Minnesota economy found that it would reduce energy demand and pollution by about 5 percent while creating 12,000 new jobs and expanding the state economy by some $350 million. This is equivalent to adding one NSP plus one Honeywell to the state economy.

Recent studes of the impact of EEPRA on the Minnesota economy found that it would reduce energy demand and pollution by about 5 percent while creating 12,000 new jobs and expanding the state economy by some $350 million. This is equivalent to adding one NSP plus one Honeywell to the state economy.

The pollution tax represents a real cost that is not included in the price of our fossil fuels. The Minnesota Public Utilities Commission has formally concluded that pollution from electric power generation has a real and quantifiable cost. The PUC estimated that the future cost of pollution from Minnesota energy use is $1-6 billion a year. Thepollution tax begins to account for these true costs. Today we are passing these costs on to our children.

Why Tax Carbon?

Acarbon tax is an excellent surrogate for many kinds of pollution and is simple to administer. For example, the single largest source of the mercury emissions that pollute our lakes and result in increasing fish advisories is coal-fired power plants. Sulfur emissions largely come from burning coal and diesel fuel. Volatile organic compound emissions which cause smog come from the evaporation of gasoline. Carbon monoxide and carbon dioxide emissions come from burning fossil fuels. Thus, although we use a carbon tax, it is in reality a pollution tax.

Rewarding Efficiency

Thisbill is a revenue-neutral tax-shift that gives individual firms and households significant control over whether they will pay more or less taxes. Those firms and households that improve their efficiencies will see an overall net benefit. Even with the improvements in energy efficiency over the last decade, much remains to be done. Case studies indicate that businesses can reduce energy consumption by 15-30 percent with investments that repay themselves quickly. Households can reduce energy use by 10-20 percent. This bill provides funding for technical assistance to identify cost-effective efficiency measures for businesses, and provides financing for such improvements.

Whenfirms and households improve their energy efficiencies, the community benefits along with the individual. Investments in renewable energy and energy efficiency create jobs within the state. Less spending on imported fuels means more money to spend at local businesses.

Theindustries of the future are knowledge- and labor-intensive, not materials- or energy- intensive. Thus, a pollution tax gives a boost to the most rapidly growing industries while working to accommodate energy-intensive manufacturers. The bill provides a pool of capital that can help boost the efficiency of business, especially small companies that make up the backbone of our expanding manufacturing sector.

Preserving Minnesota’s Natural Environment

Thepollution tax-shift recognizes that Minnesota can suffer significantly from climate changes. The world scientific community agrees that human activities contribute to climate change. As a result of increased greenhouse gas emissions in coming years, we will experience more frequent and severe snowstorms, droughts and floods. Minnesota is at the intersection of three ecosystems and at these edges the impact of an incremental change in the climate can be profound and abrupt.

“Minnesota is at the ecological cross hairs of climate change.”
Stephen Schneider, world-renowned climatologist and professor at Stanford University
at a recent conference sponsored by the Humphrey Institute, Sierra Club and the Minnesota Environmental Initiative

Why Minnesota? Why Now?

Minnesotahas been a national leader in many policy areas, from charter schools to the environmental trust fund. The nation needs out leadership once again.

At the national and state level both political parties are pursuing tax-shifting plans that would reduce taxes on income or investment or property and increase taxes on consumption. The proposed pollution tax is a consumption tax which focuses on that form of consumption with the greatest negative impact.

Byembracing this kind of tax shift Minnesota can help ensure that people will be able to live out their lives in their own homes. Moreover, we will have embraced a policy that fosters the industries of tomorrow while protecting future generations.

Education Finance Reform And Making Polluters Pay

TheEconomic Efficiency and Pollution Reduction Act of 1998 would eliminate the general education portion of business and residential property taxes which is one component of the overall school district levy. EEPRA would transfer the collection of about $1.2 billion per year from the school district to the state. This would reduce the school district portion of property taxes by almost 60 percent and reduce overall property taxes by about 25 percent.

Current Education Funding
Total ($5.6 billion) = Local Property Taxes ($2.3 billion) + State General Fund ($3.3 billion)

Education Funding After EEPRA
Total ($5.6 billion) = Local Property Taxes ($1.1 billion) + State General Fund($4.5 billion)

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David Morris

David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.