A front-page story in Sunday’s Star Tribune captured a clarifying transformation that has come to the great American tax debate in 2013.
It seems that Gov. Mark (“Tax the Rich”) Dayton is locked in yet another late-session showdown against recalcitrant legislative majorities, who are again threatening to balance the state’s books and favor their political allies on the backs of hardworking middle-class Minnesotans.
The twist this year is that the legislative tormentors of the middle class are now Dayton’s fellow Democrats, and the allies being comforted are mainly leaders and workers in schools, universities, local governments and other public-sector enclaves. And even “Dayton’s stance against taxes that touch the middle class,” the paper reported, “is not absolute.”
As my uncle in Arkansas likes to say: You are going to need help not to understand this.
What might be easy to miss, though, is the larger change of which these entertaining developments are a part. From Washington, D.C., to St. Paul, in the wake of the 2012 elections, two separate and long-lasting formulations of political hogwash are being exposed as frauds. With luck, this could improve our chances of candidly confronting the nation’s public-finance problem, at least a little.
In short, the era of “no new taxes” is over. But so is the era of “tax the rich.”
For years on end, many conservatives have insisted that government at all levels has “a spending problem, not a revenue problem,” and that no increases in tax levels were needed to balance the public’s books.
Many liberals have countered that discomforting change in government programs could be avoided, and public investments enriched, if only we required the wealthy to finally pay their “fair share.” The middle class could be spared from higher taxes.
No doubt most readers prefer one flavor of this moonshine over the other. Me, too. But the sober point here is that, in reality, we are getting neither.
Reality rushed in with Washington’s new year’s “fiscal cliff” deal. Mainly a heroic labor of statesmanship to leave a lot of things unchanged, it included two notable exceptions. Republicans in Congress, chastened by President Obama’s re-election, at last agreed to an increase in the top federal income tax rate — a 4.6-percentage-point rise on family income above $450,000.
But at the same time — quietly, with scarcely a breath of debate — both parties allowed a two-year “holiday” to end on part of the Social Security payroll tax. It produced a 2-percentage-point bump on wage income above, well, $0 (and up to around $114,000).
The bottom line on these two provisions? A hardworking middle-class family earning $50,000 saw taxes rise by 2 percent of its total income. A family making 10 times as much got clipped by less than 1 percent of its total income.
These may well have been prudent measures so far as they went. But they were not “no new taxes.” And they were not exactly limited to taxing the rich.
No doubt that messy outcome had a lot to do with divided government in Washington. But as we’re seeing, even here in Minnesota, where voters last fall handed complete control over tax policy to Democrats for the first time in a generation, a pure and refreshing tax-the-rich plan seems at best uncertain.
The major trouble the Senate tax bill ran into Monday only deepens the uncertainties.
To be a hardworking smoker (full disclosure: like me) is, as usual, particularly hazardous. In enlightened minds, smokers may have slightly more right than corporations to be considered persons, technically, under our Constitution. But politically they count for less. Even Dayton has been persuaded to hike cigarette taxes about $1 a pack, even though tobacco levies hit Minnesotans of modest means hard.
Legislators, meanwhile, are going much farther, also considering measures to hike taxes on the basic necessities of life — things like clothing, haircuts and booze.
To be sure, there are hefty income tax increases on the rich in the works as well. But under the Senate tax bill, which stuck in members’ craw Monday, the higher rates would have reached single Minnesotans with taxable incomes as mainstream as $80,000.
Some, no doubt, might think such people are plenty well-off — even if they may have to lay off the wine steward to afford their newly fair share.
It is reasonable to argue that all this new revenue is needed. It is not reasonable to miss or deny DFLers’ willingness to raise a good part of it from nonrich Minnesotans.
Dayton’s dilemma seems genuine. No politician in America has made such an indelible signature out of his zeal for taxing the rich and only the rich.
Earlier this year, the governor completely abandoned a sweeping sales tax expansion proposal when it became clear that including business services was unworkable. Only the business piece, he explained, made it palatable for him to broaden the range of purchases on which ordinary Minnesotans were taxed, even though he claimed that his proposal would produce no net tax hike for consumers.
However the budget battle turns out in the weeks ahead, a bracing dose of reality should have been delivered by now. There is much hard work ahead in reconciling this society’s finite means with its ever-growing needs and wants — with unmanageable health care costs, an aging infrastructure and aging population, daunting educational challenges, and all the rest. Choosing among higher taxes, simply recognizing limits and demanding that government change and improve how it does its work will confront us unendingly.
The good news is that the last few months should have clarified this: There will have to be some higher taxes. But to the extent we choose higher taxes rather than limits and reforms, it will sooner or later mean higher taxes on everyone. Even if you’re not rich. And even if you don’t smoke.
D.J. Tice is the Star Tribune’s commentary editor. Reach him at email@example.com.