Just because a statement is made with great certainty and conviction does not mean that it is correct. Rep. King Banaian’s commentary regarding the impact of Governor Dayton’s income tax proposal is a case in point.
Rep. Banaian is mistaken when he asserts that “almost half of all S-corporations and partnerships file at the top individual income tax rate.” Nowhere near half of these filers are affected by the current top tier rate. Moreover, individuals file individual income tax returns; businesses do not. Only six percent of tax returns for individuals that report positive income from owning or investing in S-corporations, partnerships, and sole proprietorships would be affected by the Governor’s proposed fourth tier income tax. Even for these individuals, only the portion of taxable income in excess of $250,000 (married joint filers) would be subject to the tax increase.
The cry of “class warfare” is a standard bugaboo that conservatives trot out when they are losing a policy argument. Under Governor Dayton’s proposal, the wealthiest Minnesotans will still be paying a smaller share of their income in state and local taxes than middle-income families. Dayton’s proposal reduces the advantage that the wealthiest households enjoy relative to other Minnesotans in regard to state and local taxes. This is not class warfare, but simple tax fairness.
In attempting to justify conservatives’ large cuts to Local Government Aid, Rep. Banaian argues that these revenue sharing cuts will not contribute to property tax increases. He’s wrong. Research from non-partisan House, Senate, and Revenue Department staff concludes that for every dollar cut from Local Government Aid, property taxes will increase by about 50 cents and funding for public safety, street maintenance, snow removal, and other city services will be cut by 50 cents.
The history of the last decade confirms the conclusions of these non-partisan researchers. Real per capita city property taxes have soared since 2002, despite the fact that real per capita city spending has fallen. How can this be? In response to huge local aid cuts, local governments have been compelled to both increase property taxes and cut local budgets.
Rep. Banaian is right about one thing: “Our state, and in particular the areas outside of the metro area, are undergoing demographic change. We will need to attract smart, skilled workers to further grow the St. Cloud economy.” How will St. Cloud or other regional centers grow their economy when funding for state colleges and universities, K-12 education, public safety, and public infrastructure are all being cut? These are the fruits of the conservative “all cut” budget, which Governor Dayton avoids through a balanced approach that combines spending reductions with a tax increase upon the wealthiest two percent of Minnesotans.
Last week, representatives of Chambers of Commerce from across greater Minnesota told Governor Dayton that more LGA increases will result in property tax increases; these property tax increases, they said, will be harmful to Minnesota businesses, especially those located in greater Minnesota where LGA is essential to holding down property taxes. These business leaders support an increase in state taxes over the conservative plan of more LGA cuts and more local property tax increases.
Since 2002, Minnesota has followed the conservative approach to balancing the state budget. During that period, Minnesota has been among the top ten states in the nation in cutting real per capita state revenue. All we have to show after nearly a decade of the “no new state tax” agenda are soaring local property taxes and a rate of job and income growth that is well below the national average. The “all cut/no new tax” approach has failed.
Governor Dayton offers a smarter way forward. We can mitigate further cuts to education, transportation, public safety, infrastructure, services to the disabled and elderly, and other public services simply by asking the wealthiest two percent to pay state and local taxes at a rate closer to what other Minnesotans are paying. This approach will be better for Minnesota businesses and fairer for Minnesota taxpayers.