The Scum at the Top
Commentary on the Rats in Washington
Study Prompts Look at Tax Fairness
By Brian Bonner
Pioneer Press
© March 17, 2003
Page 1B
Burden falls heaviest on poorest
Forget about soaking the rich. How about if they just started
to pay their share of taxes? That is the message some state
legislators are honing and hearing during town hall meetings
to discuss Minnesota's budget crisis.
"We're known for being a progressive state," said state Rep.
Joe Atkins, DFL-Inver Grove Heights. The reality, Atkins said,
is far different. "We're not even proportional. We're not even
close to a flat tax. We're regressive."
The statistics causing the stir are from the state Revenue
Department, which earlier this month projected the relative
burden of all state and local taxes for each household in
2005.
The report found that Minnesotans making more than $740,848
a year will pay only 7.6 percent of their income in taxes,
while people making less than $30,787 a year will pay 11.2
percent. For the lowest-income households, that's an
effective tax rate nearly 1½ times higher than at the top
end.
The latest numbers show the need to "bring some element of
fairness into the system," said Atkins, a member of the House
Tax Committee. "I don't believe the tax system should be as
regressive as it is."
No group of Minnesotans will pay in taxes a smaller share
of their income than the richest 8,615 households - who
collectively make as much as the poorest 945,560 households.
All of Minnesota's 2.45 million households combined will pay
11 percent of their income in state and local taxes.
The difference in revenue is substantial. If the highest-income
households paid the same rate as the lowest-income households,
the state would raise another $573 million a year. Over a
two-year period, the amount equals 27 percent of the state's
$4.2 billion deficit.
Gov. Tim Pawlenty is not buying into the fairness argument.
"Whether we should adjust the relative burdens or not is an
interesting debate," Pawlenty said in a recent interview.
"But the bottom line, in these times, is that we are not
raising taxes."
The governor thinks the rich are paying their fair share
of income taxes. "It depends on your perspective," Pawlenty
said. "They already pay some of the highest marginal tax
rates in the country in terms of income tax. So if you
look at taxpayers - upper-middle income taxpayers and the
wealthy pay the lion's share of it."
Countered Atkins, "The governor needs to understand that
we don't just count income taxes when we judge progressivity."
Minnesota's income tax is progressive, but numerous other
taxes push the state's overall system into the regressive
category, according to the study.
WHAT THE NUMBERS SHOW
The Revenue Department study calculates tax burden in several
ways. One method adds up all projected household income in
the state - an estimated $158.7 billion in 2005 - and divides
by 10, what statisticians call a decile. Then it ranks
Minnesota's households by income, lowest to highest, and
assigns them one of the 10 slots.
It takes 945,560 of the lowest-income households to make
one-tenth of all household income, or roughly $15.87 billion.
That's almost 39 percent of all households. They are the
bottom 10 percent, making $30,787 or less a year. But they
will be paying 11.2 percent of their income in taxes.
It takes only 8,615 of the highest-income households to
reach the one-tenth figure. That's 0.3 percent of all
households. They are the top 10 percent, making $740,848
or more a year. But they will be paying only 7.6 percent
of their income in taxes.
The study takes into account all state and local taxes -
including income, property and sales taxes. It counts 31
forms of taxes in all. The report is available at
www.taxes.state.mn.us, the Revenue Department's Web site.
The study makes no adjustment for tax savings from federal
itemized deductions, which lowers the upper-income burden
even more. For example, after the federal offset in 2000,
households that made more than $102,412 dropped their effective
tax rate from 10.3 percent to 8.2 percent.
FAIRNESS DEBATE
Revenue Commissioner Daniel Salomone said the study, which
has been done every two years since 1990, is a reliable indicator
of tax burden. He said projections for 2005 are especially
meaningful because they reflect recent changes in tax law.
But Salomone doesn't think Democrats will gain much political
traction on the tax-fairness issue. The reason, he said, is
that Minnesota's tax burden is less regressive than many
other states - especially those without an income tax.
"The overall system is slightly regressive," Salomone said.
"While it may be disturbing - Minnesota is roughly
proportional."
Proportionality could be achieved, Salomone said, by raising
income taxes on the wealthy or lowering regressive taxes such
as sales or liquor.
Salomone said he and Pawlenty haven't decided whether the
administration's goal is to achieve a proportional tax
system - in which people pay an equal share of their income
in taxes. A progressive tax system, in which tax rates rise
as income does, appears out of the question. In a regressive
system, tax rates fall as income rises.
Salomone said: "Given we are near proportional and that's
about as good as it gets with state and local taxes, I would
guess the governor is not agitated by the outcome of the
report."
Atkins and other Democrats, however, will keep raising the
issue as part of a broader fairness debate. Atkins got a good
reception at a recent town hall meeting in the Democratic
stronghold of South St. Paul (which voted for Pawlenty, a
native son). He expects to talk more about taxes at a similar
meeting in Inver Grove Heights on March 20.
Rep. Katie Sieben, DFL-Newport, said issues not directly
related to the budget crisis - rising CEO salaries,
health-care costs and gas prices - are all part of the
fairness debate. The state's regressive tax system, she
said, adds fuel to the discussion.
"Part of that discussion should be who's paying the taxes?
Where's the burden falling?" said Sieben, who is a member
of the House Tax Committee. "My argument is that it's falling
on the middle class, the working class. I think there's a
general feeling that government isn't looking out for the
middle class."
Brian Bonner can be reached at
bbonner@pioneerpress.com
or (651) 228-2173.
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