Taxing exports is a nice racket under the right conditions, but self-defeating under others. The contrasting situations of Argentine farming and Wyoming coal production illustrate the complications that may someday face Minnesota, if world metal prices stay high.
In Argentina, President Nestor Kirchner jacked up taxes on exports of corn, wheat and soybeans as soon as his wife won the election to succeed him. A bushel of soybeans worth $10 in world markets yields $2.60 to the government and $7.40 to farmers and grain handlers.
Argentina taxes grain exports because it can raise a lot of money that way. The people who are harmed never supported Kirchner’s party anyway. Moreover, taxing grain exports keeps domestic food prices down, since farmers export less than they would if the grain weren’t taxed. Bread would cost more without the 28 percent tax on wheat exports. That pleases urban consumers and disguises the inflation that accompanies too-rapid money creation.
Argentine farm profits suffer, however, as do investment and employment in its agricultural sector.
Minnesota farmers need not worry. When the U.S. Constitution was being written, New England interests got a specific clause – “No Tax or Duty shall be laid on Articles exported from any State” inserted into it. It can’t happen here.
However, some states succeed in effectively taxing exports from their states to the rest of the nation. These measures don’t violate the letter of the Constitution and do force consumers elsewhere to fund the exporting state’s government.
States may not tax exports to other states. But they can levy severance taxes on oil, minerals or timber produced in their states.
Alaska produces much oil and exports most of it. Wyoming produces enormous amounts of coal and ships virtually all to other states. Both states impose severance taxes on natural resource extraction that produce big proportions of total state revenues. Such taxes provide Wyoming with more than $900 per resident annually. Revenue from petroleum taxes gives Alaskans the lowest tax burden of any state and provides yearly cash payments of $300 to $1,900 per person.
But don’t these taxes hurt investment and employment, as they do in Argentina? The demand for coal and oil is such that, combined with the cost structures of these industries, any reduction in investment or employment is small relative to the tax revenues produced.
So imposing mineral taxes paid by consumers elsewhere can be a good deal. Minnesota once earned much money taxing iron ore. But in 1964, voters agreed to limit such taxes in order to encourage construction of taconite plants, choosing greater investment and employment in Northeastern Minnesota over easy tax money. The limit doesn’t apply to other metals like copper or nickel, however. Minnesota does not have monopolies on these metals, but could have choices to make if their mining becomes viable.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.