Minnesota drops in tax fairness

Looking for fairness in the tax system? Don't look to Minnesota. In the battle of the haves versus the have-nots, the haves are winning.

Since 2000, Minnesota's state and local taxes have become more regressive. That means low- and moderate-income families shoulder a disproportionate share of the tax load.

It's a nationwide trend that's hitting Minnesota harder than nearly every other state, according to a report by Minnesota 2020, Minnesota's Tax Fairness Retreat: A 50-State Study. (It can be found at mn2020.org.)

The problem is caused by an increased reliance on property taxes -- which are regressive -- and decreased dependence on income taxes -- which are progressive.

According to the study, one of the main reasons for this shift is "no new taxes" state policy, which led to reductions in state revenue sharing with local governments, thereby forcing property tax hikes.

Middle-income Minnesotans saw a significant rise in property tax rates since 2000, compared to a sizable drop for the state's wealthiest households.

Overall, Minnesota's middle-income earners pay 10.3 percent of their income in taxes, compared to the state's highest earners, who pay 7.7 percent of their income in taxes.

Minnesota's sales and excise taxes have also become more regressive.

Efforts to reduce regressivity are not "socialism" or "class warfare," but simple tax fairness.

While making taxes fairer is the right thing to do, there's an economic benefit to giving low- and middle-income Minnesotans more purchasing power.

These folks tend to spend a larger share of income on goods and services in the local community than high income families.

Respected economists agree that a stronger recovery will start when "aggregate demand" rises. That won't come by giving untargeted tax breaks to the rich.

The state needs to put money back in workers' hands to spur the demand that will get businesses hiring again.

Minnesota has tried the no new tax myth for eight years now. It's done nothing to improve the state's economy.

There are several policy options which could halt or reverse the state's growth in tax regressivity, and it's not rocket science. Using data from the Institute on Taxation and Economic Policy, the study recommends that Minnesota:

• Increase dependence on progressive revenues, such as the income tax, and reduce dependence on regressive revenues, such as property and consumption taxes.

• Enhance income tax progressivity with a more steeply graduated rate structure and refundable credits, such as the working family and dependent care credits.

• Reduce consumption tax regressivity by using progressive sales tax credits.

Low and middle income families, who are already struggling to make ends meet, should not be asked to pay a larger percentage of their income to fund state and local government services than high income households.
It's a matter of simple fairness.