When Mark Dayton started running for governor, his campaign mantra was shockingly simple: “Tax the rich.”
Now that the DFL governor has a chance to build his first budget from scratch, he wants to lean on high earners in a big way to pay off the state’s $627 million deficit and boost spending for education and other initiatives.
If legislators pass Dayton’s plan, 54,440 Minnesota tax filers would have to pay the higher rate, a sliver of the taxpaying public.
But a question has arisen from Moorhead to Minneapolis to Rochester: What exactly is “rich”?
The Dayton administration has drawn a pretty clear line. Individual filers with a taxable income of more than $150,000 and married couples with a taxable income of more than $250,000 would be subject to the new tax rates.
Minnesota has a three-tiered income tax system, and Dayton’s plan would create a fourth tier for these so-called high earners. That means that every dollar of taxable income more than $150,000, or $250,000 for married filers, would be taxed at the higher rate. So for a married couple with a taxable income of $250,001, they would pay the higher tax rate only on the $1.
Only about 9,640 single filers have taxable income of more than $150,000, according to the Minnesota Department of Revenue. More than 42,000 married filers would earn enough to qualify for the proposed higher tax rate.
There are about 590 married couples who file separately that would be subjected to the new, higher rate.
The bulk of the new tax burden would fall to Minnesotans who earn between $150,000 and $1 million. Only 4,541 Minnesota filers are expected to make more than $1 million this year.
Dayton’s tax plan has been the subject of fierce debate. Many Republicans, the minority party in the Legislature, are opposed to tax hikes and say that targeting high earners socks it to job creators crucial to the state’s economic recovery.
“The remainder of Dayton’s all-tax budget is still very ugly for Minnesota families, small businesses and job creation in our state,” said Minnesota Republican Party Chairman Pat Shortridge. “You can’t dress it up.”
Dayton argues that the wealthiest Minnesotans pay a lower overall percentage of their income in taxes than the rest of Minnesotans. He says that making the system more fair will bring in new money for education and other services. And for more than two years, polls show most Minnesotans agree with him.
“Republican leaders have it backward,” said Wayne Cox, executive director of Minnesota Citizens for Tax Justice. “Economists believe keeping teachers and firefighters on the payroll is at least three times more helpful to the economy than keeping income tax rates at the top the same.”
Some critics are concerned that the tax hikes will hit middle-income Minnesotans who run their businesses through their personal income taxes. They argue that those taxpayers appear to have artificially high incomes, but are merely struggling businesspeople barely scraping by.
The Revenue Department says that of the 353,000 tax returns in 2010 from those who reported income from their businesses, 94 percent would have experienced no income tax increase.
About 21,000 of those tax filers would have been required to pay the higher rate.
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