FREE SPEECH ZONE | Minnesota Taxes Regressive? Maybe Not.

There has been a lot of discussion in Minnesota recently concerning the regressivity of Minnesota taxes.  This is especially pertinent to the governor’s race, with Dayton saying that the rich should pay their fair share of taxes.   These discussions usually stem from the every other year tax incidence reports created by the Minnesota Department of Revenue.  The latest one is the 2009 Minnesota Tax Incidence Study, which can be found at   http://taxes.state.mn.us/legal_policy/Documents/other_supporting_content_2009_tax_incidence_study_links.pdf   This study looks at all the taxes implemented at the state and local level and determines who really bears the burden of these taxes.  It is not immediately obvious which households ultimately bear the burden of business taxes.  At first glance one might think that the owners of businesses bear 100% of this burden, but if the businesses can pass on this cost to their customers in the form of higher prices, or to their employees in the form of lower wages, then the owners do not bear this full burden.  And in fact economic analysis indicates that consumers and employees do indeed bear most of the burden of business taxes.  The tax incidence report does this economic analysis to determine how much various categories of households are ultimately subject to state and local taxes.   The analysis that generates the most discussion is the study of the percentage of state and local taxation as a percentage of income for various income levels.  The study gives this percentage of tax at ten different levels of income (deciles).  Thus the 10% of households that make the lowest income are called decile 1, while the 10% of Minnesota households that make the highest income are decile 10.   This analysis indicates that Minnesota state and local taxes are somewhat regressive, that is, the level of state and local taxes as a percentage of income is higher for the lower deciles than the highest.  This regressivity is most striking at the highest and lowest deciles, with the tax percentages being 23.8% for decile 1 and 10.0% for decile 10.  However, the data is by far the weakest for decile 1, because much of the poorest Minnesotans’ income is excluded (see #4 below).  The other eight deciles range from 11.5% to 12.5%. Free Speech ZoneThe Free Speech Zone offers a space for contributions from readers, without editing by the TC Daily Planet. Continue Reading