DFLers concerned about inequities in Minnesota’s tax system finally have the opportunity to make the changes they have argued in favor of for years. Rather than seizing the moment, some of those who, under Republican governors, routinely advocated restoring income tax rates on high earners to 1990s levels, suddenly seem to have grown cautious now that they have the chance to send such a bill to a governor who will actually sign it into law.
While DFLers would be wise to balance new revenues with appropriate budget restraint, Minnesota voters didn’t put DFLers in charge of the Legislature hoping for more of the same. For over a decade, Minnesotans have watched as legislators “balanced” the budget through unprecedented borrowing from schools, cuts to services that target the state’s most vulnerable, and by slashing local government aids, thereby pushing property taxes higher.
It’s left the state billions of dollars in debt and with ongoing structural deficits as far as the eye can see. A balanced approach, that includes new revenues, is clearly needed, and DFLers would be doing voters a disservice if they fail to deliver.
There is little doubt where much of the new revenue should come from. The Minnesota Department of Revenue’s 2011 Minnesota Tax Incidence Study found that Minnesota’s wealthiest now pay a lower percentage of their income in state and local taxes than any other income group. Indeed, the study found that the wealthiest ten percent of Minnesotans— those earning $130,000 a year or more— pay just 10.3 percent of their income in state and local taxes. By contrast, the 90 percent of Minnesotans who make less than $130,000 annually, pay an average of 12.3 percent of their income in those same taxes. The only way to ensure greater tax fairness is to adjust the income tax rate at the top end.
And that’s exactly what Gov. Mark Dayton wants to do. During the previous biennium, the governor called for the creation of a fourth income tax bracket that would impose a 10.95-percent rate on single Minnesotans earning more than $150,000, heads of households making more than $200,000 and joint filers earning more than $250,000 annually — all after deductions. That amounts to about two percent of the state’s 2.4 million citizens filing income taxes.
Such an increase won’t solve the state’s budget problems, but it’s a good start, and it simultaneously improves the fairness of the state’s tax system overall. DFLers should give the governor what he’s asking for.
They shouldn’t worry that Republicans will try to paint them as the party of tax-and-spend. Republicans do that every election season, regardless of the reality. Besides, tax-and-spend is a whole lot more responsible than borrow-and-spend, which is the Republican approach to governance.
Republicans will no doubt claim that a slight bump in the tax rate for the richest Minnesotans will hurt the state’s ability to retain and add jobs. That’s just hogwash. At both the state and national level, there’s no evidence to support such fears, as study after study has demonstrated. The most recent, conducted by the nonpartisan Congressional Research Service, examined six decades of data and found that tax rates have little impact on the economic growth. Well into the 1950s, the top marginal tax rate was above 90 percent. Today it’s 35 percent. But both real GDP and real per capita GDP were growing more than twice as fast in the 1950s as in the 2000s. While higher tax rates have not hurt economic growth, the CRS found that reducing taxes on top earners has increased income inequality in America, a trend that is generally negative from an economic standpoint.
Investment guru Warren E. Buffet made a similar argument in a recent piece in the New York Times. For those who argue that higher rates hurt job creation, Buffet noted that a net of nearly 40 million jobs were added between 1980 and 2000. Since then, there have been lower taxes and far lower job creation.
Minnesota’s history shows the same pattern. Despite relatively high tax rates during the 1990s, the state prospered. But reducing taxes has not resulted in a windfall of new jobs.
It has resulted, however, in a growing gap between the state’s wealthiest citizens and its middle-class and lower-income residents, the same trend experienced nationally.
The evidence is in, and the voters have opted to give DFLers a chance to bring positive changes to Minnesota. Now isn’t the time to go weak-kneed. It’s up to the DFL to deliver positive and progressive approaches that will improve the state’s long-term fiscal outlook and bring sustainable economic growth to Minnesota. If they do that, voters will reward the DFL in the future. If they fail to deliver, voters will have little reason to thank them the next time they head to the voting booth.