Following a decade of state budget uncertainty, in 2013 Gov. Dayton and DFLers in the Legislature showed the leadership necessary to correct the state’s fiscal course by budgeting in an honest and responsible way free of shifts, gimmicks and borrowing. Part of this solution was to increase tax fairness by requiring the top 2 percent of income earners to pay their fair share.
Every two years, the Minnesota Department of Revenue releases the Tax Incidence Study, a comprehensive report of who pays taxes in the state, how much and at what percentage. In 2009, then-Gov. Tim Pawlenty’s Revenue Commissioner released a study showing that the top 10 percent of income earners in the state paid more than a 2 percentage point lower share of their income in state and local taxes than middle income earners. Correcting this gap would increase the progressivity of our state tax system and also increase financial stability.
This year’s tax incidence study shows the gap between taxes paid by the top and the middle income earners has fallen to under 1 percent. Looking more broadly, a 2015 study by the Institute on Taxation and Economic Policy shows Minnesota is ranked in the middle for all states when it comes to the taxes paid by middle-income earners. Minnesota may rank in the top 10 for state income taxes paid, but if we evaluate taxes and fees paid, Minnesota ranks in the middle among other states.
When Gov. Dayton’s tax fairness proposal was discussed in 2013, Republicans predicted a gloom-and-doom scenario in which businesses would flee, innovation would disappear, unemployment would increase and Minnesota would no longer be competitive. Not only has none of this happened, evidence points to the opposite. Recently, U.S. News and World Report ranked Minnesota the third best state in the nation. In 2016, CNBC ranked Minnesota the fourth best state in which to do business and AARP ranked us the best state in which to retire.
Republicans in the majority of the House and Senate are looking to pass huge tax cuts pushed by big business interests which will only help the wealthiest. As the legislative session heads into its final weeks, instead of passing tax breaks for the rich, we should target resources toward programs which are proven to benefit working families. Tools such as the Working Family Tax Credit, the Homestead Credit, Renter’s Refund and fair Local Government Aid formulas all expand economic opportunity broadly and keep Minnesotans out of poverty.
Another change we should make is adjusting state spending by inflation. In 2002, under Gov. Pawlenty, the state excluded inflation in forecasting spending, only adjusting revenue by inflation. This results in budget forecasts that tend to predict unrealistic surpluses. If state spending was adjusted by inflation we would have more accurate and trustworthy budget forecasts.
I hope we can look at the benefits that tax fairness gives all of us, and not go backward toward tax policies putting our state finances in jeopardy. When looking at our taxes, it’s important to look at what we get in return. In Minnesota, we have a successful economy, world class schools, a quality way of life for our seniors and abundant natural resources. None of this comes to us free and with steady, predictable state revenue coupled with responsible budgeting, we can continue to deliver this to all Minnesotans.