When ‘no new taxes’ means ‘no tax reform’

By Senator Becky Lourey

A pledge of “no new taxes” sounds great if you’re treated well under the current tax system. That applies to the wealthiest one in ten Minnesotans. For the rest of us, who bear a disproportionate burden of the cost of shared public services, “no new taxes” is a smokescreen to obscure what’s broken about the system and to prevent any improvements. It really means “no fairer taxes.”

Look at the figures. Minnesota’s tax system puts a heavier burden on middle-income earners than the wealthiest, and a heavier burden on small businesses than the largest. That was what the Minnesota Department of Revenue found in its 2005 Tax Incidence Study, available at HYPERLINK "http://www.taxes.state.mn.us/reports/reports.html"www.taxes.state.mn.us/reports/reports.html. Measuring state and local taxes together, the study determined that the wealthiest tenth of the state’s income-earners (individuals and businesses) paid a lower portion of their income in taxes than nearly everyone else.

If you were in the middle third of income-earners, 11 percent to 12 percent of your income went to state and local taxes.
Meanwhile, the wealthiest tenth of income-earners paid 10.7 percent.
Among those, the wealthiest one in a hundred Minnesotans paid 9 percent.
The wealthiest one in 200, earning more than $494,000, paid 8.5 percent.
And the very wealthiest one in 400 – earning over $1.27 million – paid 8 percent.

If that picture seems odd, it’s because it inverts the modern notion that we should ask less of those who have less to give. Tax rates are supposed to get progressively lower for those who have less income, not for those who have more.

And the system is getting more regressive. For individuals who earn less than the state’s average income, the portion spent on taxes is going up – but going down for the wealthiest fifth.

Small businesses face the most regressive taxes. The one out of ten businesses with the least income pay 11.7 percent of that income in taxes; the top-earning tenth pay just 2.3 percent.

This is the system Gov. Tim Pawlenty is protecting when he rejects new ideas to change the tax burden.