A spotlight has been on the income tax rates paid by Minnesota’s top earners all year at the Capitol.
Here’s one good reason why: The effective marginal tax rate paid by those in the top income tax bracket was lower last year than in all but five other years since 1970.
That telling tax tidbit was quietly reported to interested legislators by House Research several months ago. The report combined the federal and state income tax rates assessed against that portion of incomes that falls into the highest federal and state brackets.
It found that in 2010, top earners faced a combined federal-plus-state effective marginal rate of 43 percent. Only between 1988 and 1992 were effective top marginal rates lower for Minnesotans. Through most of the 1990s, the effective combined marginal rate topped 50 percent.
The study showed that if the Bush-era tax cuts expire for upper-income filers, as President Obama favors, and if Gov. Mark Dayton
’s original income tax proposal had won the Legislature’s approval, the effective rate for top-tier payers in Minnesota would have jumped by 2013 to more than 53 percent.
A tax increase that large and sudden would send many affluent Minnesotans searching for a tax shelter elsewhere, Republican legislators argued as they rejected Dayton’s proposal. They had a point.
But so did Dayton when he noted that the tax burden borne by upper-income Minnesotans has lightened in recent years, even as the share of total personal income claimed by top earners has swelled here and around the country to levels not seen since 1929.