Short take: What really kills jobs

  • Article by: LORI STURDEVANT , Star Tribune
  • Updated: May 17, 2011 - 10:19 PM

FILE - This Feb. 24, 2011 file photo shows former Arkansas Gov. Mike Huckabee in Washington.

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"It's a job-killer."

That's how Republicans routinely describe DFL Gov. Mark Dayton's proposed top-tier income tax increase. In its latest iteration, Dayton's plan would raise $1.5 billion from taxpayers whose pretax incomes (married filing jointly) exceed about $300,000. That would include businesses whose profits "flow through" to their owners and are taxed as personal income.

Some numbers obtained from research economist Paul Wilson of the state Department of Revenue put the "job-killer" claim into perspective:

Only 4.5 percent of all Minnesota "flow-through entities" (sole proprietorships, subchapter S corporations, partnerships and limited liability corporations) would have paid higher taxes had Dayton's most recent proposal been in force in the last year for which data is available, 2008.

Of that 4.5 percent, about two of every five would have been sole proprietorships -- truly small businesses, often consisting of one "employee," the owner. Some examples of sole proprietorships: a self-employed consultant; a retail shop owner; a home-based child care provider.

The rest would have been partnerships and S corporations -- businesses that choose that structure rather than the more traditional C corporation (which pays corporate income taxes) because of the federal tax advantage it brings. These businesses can be quite large, but the majority are professional-services firms -- law, realty, accounting, investments. Those aren't the enterprises that spring to mind with the phrase "job creators." Neither are they particularly footloose.

It should also be noted that the higher tax Dayton proposes would for most of these taxpayers be deductible for federal tax purposes, bringing the net increase down by about a third. Further, when these enterprises hire more or otherwise invest in their businesses, they reduce their tax liability.

Republicans often contend that this small, successful sliver of Minnesotans is so tax-averse that they would leave the state rather than pay higher taxes. The GOP also argues that the job losses that would ensue would be worse for Minnesota's future than the government layoffs, property tax and tuition hikes, and safety net cuts that the party proposes as an alternative.

The longer the budget impasse lasts at the Capitol, the more time Minnesotans will have to consider the facts and judge the GOP claims for themselves.

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