Washington County's wealthiest could feel tax pinch

Washington County is among the most affluent in Minnesota and as such, proposals by Gov. Mark Dayton and House DFLers to increase taxes on the uppermost reaches of the upper crust hit home.

In fact, Washington County is among four counties — the others are Hennepin, Carver and Olmsted — whose residents would most feel of the effects of the "fourth tier" income tax being debated in the Legislature, according to an analysis by Minnesota 2020, a progressive think tank.

The data show that 2,858 Washington County taxpayers would be affected by the governor's plan to increase the marginal tax rate from 7.85 percent to 9.85 percent on the wealthiest 2 percent of the state's taxpayers — those married couples earning more than $250,000 annually, heads of household earning more than $200,000 and single filers who make more than $100,000.

That number ranks fourth in terms of concentration among the state's 87 counties, representing 2.61 percent of full-year resident taxpayers, third among the counties. Carver County, at 3.36 percent, has the highest concentration of wealthiest taxpayers. For most other counties — 52 of them — less than 1 percent of taxpayers are affected by the proposal, the analysis shows.

A breakdown of annual median income (the income at which half the population make more, half less) in Washington County's 31 cities and townships finds that just four communities — Bayport, Newport, Oak Park Heights and Landfall — were at less than the state's median of $58,476.

In 10 communities at the other end of the wealth scale, the median income figure topped $100,000 — led by Dellwood with a median of $145,000, nearly 2½ times the state median.

As a whole, the county's median income was $79,571.

The governor campaigned on increasing income tax rates for the wealthy, and a similar proposal was defeated in 2011, when Republicans controlled the Legislature. The debate this year is the same, with a key difference: DFLers hold the majority.

Dayton has argued that the wealthiest Minnesotans are not paying their fair share of income taxes, and Jeff Van Wychen, director of tax analysis at Minnesota 2020, said the data bear that out.

The top 2 percent of households pay 20 percent less of their income per dollar in state and local taxes (of all forms) than "middle-class" taxpayers, which it defines as the middle 20 percent, the data show.

The governor's plan is intended to correct that and provide the money needed to pay for such things as public schools and public safety.

The wealthiest 2 percent, Van Wychen asserts, also benefit most from those public services in terms of things like having a well-educated workforce and safe communities.

But that populist sentiment also hides the fact that in that 2 percent are thousands of small-business owners whose incomes are tied to their businesses and would be unfairly hurt by the plan, said Laura Bordelon, senior vice president for advocacy for the Minnesota Chamber of Commerce.

"It becomes a very uncompetitive position for Minnesota businesses," she said.

Minnesota would rise to among the top tax rates in the nation, and that's why the chamber rigorously opposes the plan, as does the Taxpayers League of Minnesota.

"What this situation is, is really a stake in the heart of small business owners," said Phil Krinkie, himself a business owner and president of the league.

Businesses with fewer than 50 employees account for 70 percent of the state's workforce, Krinkie said. "We are the economic heart of Minnesota's economy."

"I campaigned on prioritizing our spending, of staying within our means," he said.

Like Krinkie, Dettmer said businesses already face a tough taxing and regulatory climate, and would be tempted to move elsewhere. "I think we're doing a disservice to the business community and our economy by raining taxes on the fourth tier," he said.

But state Rep. Dan Schoen, a freshman DFLer from St. Paul Park who sits on the Taxes Committee, said Minnesota voters were clear in the last election about wanting lawmakers to put middle-class priorities first.

Returning borrowed money to schools, funding education and job training, and bringing property tax relief will themselves spur the economy by job growth, he said. But that requires revenue instead of shuffling money and borrowing to make ends meet. It's reasonable to ask the wealthiest few to pay more.

"They pay a lesser portion of income taxes than you or I do," he said. "Our tax system is designed to be fair across the board. … The fairest tax is the income tax. It works."