“The cost of government in Minnesota today is significantly lower than a decade ago, but the little guy is picking up a greater share of the tab,” writes Mike Meyers, Star Tribune National Economics Correspondent.
“State and local revenue this year will represent 15.7 percent of total Minnesota personal income — a drop from 17.7 percent in 1995, according to a projection by the state Department of Finance. Over that 10-year period, the tax burden has shifted gradually toward people of average and small means and away from the state’s most prosperous residents.
“The trend is likely to continue.
“‘The tax system is expected to become slightly more regressive from 2002 to 2007, because for higher deciles [the highest-earning groups of Minnesotans] income growth is expected to outpace growth in tax liability, while the reverse is true for middle to lower deciles,’ the Department of Revenue said in a report released in March.
“Put simply, taxes — in particular, property taxes — are growing faster than the incomes of most people. But the incomes of Minnesota’s most prosperous residents have climbed faster than the cost of state and local government. That’s why, as a share of Minnesotans’ total income, the tax burden is in decline.”
These trends are among the reasons I first was intrigued by, and then decided to encourage, Joel Kramer’s Growth & Justice initiative. I find Joel’s ability to bring together diverse points of view to talk about taxes in Minnesota and the need to make our tax system more progressive very encouraging.
“After more than a year of research and public discussions involving 150 citizens, Growth & Justice is proposing that Minnesota make its tax system fairer for families and better for economic growth by agreeing to a swap: higher individual income taxes on high earners and lower taxes on business. And, we show several ways to do it.” says Kramer.
Joel Kramer is the former publisher of the StarTribune and we are fortunate to have some one in the state with the time and passion to think clearly and in a new way about how we invest in the public interest. What he and his partners at Growth and Justice have learned from their research is that a number of the cherished beliefs of liberals and conservatives just don’t hold up to close scrutiny. For example, Liberals believe that taxes on business are progressive while Conservatives counter with the argument that a progressive tax system hampers business growth.
It turns out that businesses shift their taxes on to consumers and the burden ends up falling disproportionately on lower income households. But contrary to what Conservatives believe it turns out that high income tax states do just as well economically as states with lower taxes. The pay off is that although taxes are higher the tax investments go toward things that enhance the quality of life, such as better schools, roads, and other public works. In fact, states with high income taxes had agreater increase in personal income in the time period between 1980 and 1998. At the very least, progressivity in the tax system does no economic harm.
So Kramer suggests a swap, that we raise the income tax at the top (fairer for families) and lower the business tax better for the business climate. He then adds one more suggestion broaden the sales tax to include clothing but lower the overall rate, which results in a less regressive sales tax. In raising the income tax he would concentrate on the top 5% of earners keeping the rate under 10% and reduce deductions and exclusions and if possible lower the tax rate on low earners to reverse the regressive trend taxation has been taking. These changes would contribute more total revenue and revenues will grow faster. This plan also has the benefit of making the tax system progressive without tying it to the ups and downs of the business cycle, which has been a problem in the past at the same time making it less dependent on the more regressive real estate tax. Property taxes are regressive because increases there impact those with lower and fixed incomes.
As WCCO ‘Reality Check‘ observed,
“Minnesota’s taxes were higher in the 1990s than they are now, and the state enjoyed its longest economic boom in history during that time. It was then Minnesota passed a series of tax cuts and rebates, totaling $3.7 billion.
“Today, Minnesotans are paying less of their income to state and federal taxes than they did 10 years ago. In 1995, Minnesotans paid 17.4 percent of their income. Today, it’s 15.7 percent.
“Minnesotans are paying more in state fees, surcharges and co-pays. Those fees have increased $850 million.”
“Who gets hit hardest by fees,” Kramer explained, “are low and moderate income folks.” The very people who need government’s help to create opportunities and improve the chances their children will live better lives. We may be the first generation in our history who will not have fulfilled the promise to the next generation, that we will leave it better than we found it.
I made a special effort to invite Rep. Cox to the presentation and he did make it for the last half of the discussion. He took one comment that Joel Kramer made out of context and it needs to be commented on. Joel did say that although it is clear that more funding has a demonstrated benefit to early education and higher education, the benefit to k12 education of increased funding is less clear. He then added, which Rep. Cox apparently did not hear, that “the lack of clarity may not be due to things the schools can control.”
To this I would like to add the notion that if schools have been under-funded since the 1980s it would be difficult to see positive results unless you know how much it really costs to adequately fund the schools. Several school leaders, including Northfield’s Superintendent Chris Richardson, have been asking this question and demanding a study that would show what is the cost of educating a student in Minnesota, not what are we spending, but what is the cost. One other thought was expressed by a presenter at a recent conference I attended, who said that until we can say that we will truly fund schools to counter the effects of poverty, homelessness and the hardships of immigration and the migration of jobs away from our country, until we can promise every Minnesotan, every American a living wage, how can we expect that the schools can show improvement.
Recently John Kenneth Gailbraith was asked why he thought the age of prosperity he had predicted for our current times had not materialized for middle income folks the way it has for the top income earners. His response was that he had not anticipated the shift in the thinking of people more towards personal gain as opposed to continued investment in community and the public good that benefits everyone. We as Minnesotans, I believe, have a calling to reverse this trend, because with the advice of our leaders like Elmer Andersen, Rudy Perpich, Hubert Humphrey and Paul Wellstone we must hear this call to improve our society and leave it in good shape for those who will follow us. The test of a moral society, as Humphrey said, is the measure of how it provides for those at the beginning of life, those at the end of life, and those who must find their way in the shadows of life. We must not abandon this call.