Minnesota taxes are more equitable now, but only barely

The Minnesotans we admire aren’t “soak the rich” people. Neither do they want taxes to pile on the poor. They like their state and local tax burden equitably shared as a percentage of income by the rich, the poor and folks in between.

That kind of tax fairness was an elusive goal while a firm “no new taxes” clamp was in place at the State Capitol. It led to higher local property taxes, plus higher public college tuition, license and regulatory fees, and other fixed charges that fall disproportionately on the nonrich.

DFL Gov. Mark Dayton and the DFL-controlled Legislature set out to change that regressive trend this year. Their effort’s results are in from the nonpartisan scorekeepers at the state Department of Revenue. Their analysis shows that while Minnesota’s overall state and local tax scheme remains somewhat regressive, a significant move was made in the right direction. By the numerical score economists use, Minnesota tax burdens have been reset to their 2000 and 2004 levels, undoing a decade of drift away from fairness.

The new Tax Incidence Analysis has more to say, including a few things Republicans are seizing upon to fault DFLers. Last week on these pages, GOP state Sen. David Osmek noted that in every income level, taxpayers will see an increase in burden (in other words, in taxes paid both directly and indirectly via higher prices for goods and services.)

But for most Minnesotans, that increase will be tiny, the report says. By 2015, state-plus-local tax burdens as a percentage of incomes are due to increase by 0.13 percent or less for households with incomes between $35,601 and $202,407 — and in the middle of that income range, by much less.

More noticeable will be the 1.4 percent increase projected for people with incomes in excess of $510,000. That’s an uncomfortably big step to take in one year. This newspaper would have preferred a mix of tax increases that included a sales tax on clothing, thereby spreading the increase more widely and allowing for a new top income tax rate lower than the uncompetitively high 9.85 percent that now applies to the state’s highest incomes.

But those concerned about fairness have better reason to raise eyebrows over the impact of new taxes on those with incomes of less than $26,000. The poorest of them will see a percentage-of-income increase akin to Minnesota’s millionaires — if they smoke. The $1.60-per-pack boost in the state’s cigarette tax accounts for all but a sliver of the tax boost forecast for lower-income Minnesotans.

To those who decry the cigarette tax as unfair to the poor, we urge: Don’t pay it. Quit smoking. Dayton and other DFLers justified boosting Minnesota’s tobacco taxes to sixth-highest in the nation by pointing to evidence that it would help people break a deadly habit. Republicans should welcome higher cigarette taxes as a DFL concession to their argument that raising taxes alters how people behave.

Last week, the Dayton administration was just as eager to call attention to the new tax analysis as were Republicans.

“For the last decade, we’ve seen income and wealth diminish in all but the top decile” of earners, said Revenue Commissioner Myron Frans. “At the same time, the tax burden on that decile has been falling. This is the single largest change to the good since 1990.”

But there’s a limit to how much crowing about tax fairness is advisable when the rebalancing act involved tax increases, not cuts. The larger GOP critique — that a recovering economy made no tax increase necessary, and that raising taxes on top earners will drive jobs to other states — deserves a DFL response that goes beyond a boast about a fairer sharing of tax burdens.

In the 2014 state election campaign that is already starting this summer, Minnesotans ought to hear more about what that tax increase is buying. The next election will be voters’ chance to pass judgment on state investment in all-day kindergarten, preschool for disadvantaged children, a tuition freeze at public colleges and universities, a boost in student financial aid, sales tax relief to local governments, and a lifeline to foundering nursing homes. Fairness does not make the case for a tax increase. If done efficiently, that kind of spending does.