When assessing taxes, don't focus on fairness

Let's make a couple of things abundantly clear — tax policies are political and there is no such thing as fair.

Taxes pay for the services that government provides — some of which we agree with and others that we don't. What gets taxed, what doesn't, and why, are political pushes in certain directions to create either incentives or disincentives for behavior. Fair is not a word that can be used with taxes because, as Rumi pointed out, we see things through our own piece of a broken mirror.

When Gov. Tim Walz says the rich must pay their "fair share," he is making value judgments about who is rich and what is fair, implying that those who pay the most in state income taxes have been getting a deal.

The tax that people who earn the most money or realize more on their profitable investments pay is a worthwhile discussion, but the decision won't be fair. Everyone who spends money pays taxes. Everyone who earns something pays taxes (at least FICA), although if their income is low enough, they may get some of it back through credits. Neither the poor nor the rich are freeloading.

The federal tax code allows deductions for charity as a nudge for people to be generous. It encourages home, not mansion, ownership with a mortgage interest deduction up to certain limits. Cigarette and liquor taxes are attempts to discourage smoking and drinking.

My life was shaped by the taxes other people paid and the choices politicians made around how they were spent. I put myself through the University of Minnesota not only by working, but through the largesse of the Legislature which, at the time, was subsidizing more than 60% of my tuition costs. It would have been much harder for me to do so today since the choices the Legislature has made has reduced its contribution level below 20% of tuition costs.

My business partner and I "paid back" that legislative allowance by starting a company five years after graduation that now has roughly 50 working and paying taxes. In my situation, the tax policy was good for me and good for the state.

One of the things that Minnesota tax policy is discouraging, though, is staying a Minnesota resident.

Raising the tax rate on higher earners and taxing capital gains at higher levels will most likely lead to more revenue from those working because they will have a hard time leaving their jobs, although it will undoubtedly be easier than it was pre-pandemic.

There will also be high income/high asset retired residents who will stay in Minnesota and pay those higher taxes.

But a number of people will move to lower income tax states before they sell their stocks, their businesses or their retirement accounts. We can say these people are greedy, but many of them are no longer big users of state services and have continued paying their taxes for years.

But the tax rate impacts even those not paying it. If you are a sports fan, then the cost of attracting free-agent players could be affected by the Minnesota income tax. A baseball player has to file taxes in each state in which he plays, but a Minnesota Twin knows at least half his games will be played in Minnesota and those earnings will be subjected to Minnesota tax, even if he is not a Minnesota resident. A good agent would certainly consider that in salary negotiation, increasing the costs to the teams and potentially your ticket prices.

The losses go beyond money. When people leave the state, their social contribution goes as well. While it can be tempting to say good riddance, is that really what we want?

Taxes are political. All of us can benefit from understanding for what we are paying but also working with our legislators to help them make spending and taxing decisions in which we believe. But let's not talk fairness, let's talk benefits.