Minnesota legislators are on spring break this week. Many will be positioned to collect constituent reactions to the 2014-15 budget outlines that DFL majorities released last week before the annual midsession recess.
About one aspect, they ought to get an earful. The House DFL proposal to double down on an upper-income tax increase — albeit temporarily — risks launching the state’s top tax rate into an anticompetitive stratosphere. It’s an idea that ought to disappear faster than March snow.
House DFLers insist that Minnesota should get its recession-incurred obligation to school districts off its books ASAP, and no later than June 30, 2015. They’re willing to impose a temporary income tax surcharge exclusively on the state’s top earners to raise the $854 million that task requires. Their surcharge would “blink off” as soon as schools were paid, either via surcharge revenues or any forecasted surplus dollars, to which schools have a claim under existing law.
But that’s not all. House leaders are also intent on a permanent income tax increase for top earners. In that, Senate DFLers and DFL Gov. Mark Dayton concur.
Nobody but Dayton is yet willing to attach a rate to his proposed new top tax bracket. Dayton’s bid is a 9.85 percent rate for that portion of taxable incomes that exceed $150,000 for single filers and $250,000 for joint married filers. That rate raises an estimated $1.1 billion over the next two years — and would be an uncompetitively high fourth-highest in the nation.
The House evidently aims to see Dayton’s precariously high bid and raise it for the next two years. The highest marginal rate in the country is California’s 13.3 percent for earners of $1 million or more; Hawaii is in second place with 11 percent. The House majority appears willing to put Minnesota in the California-Hawaii tax league.