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Still fact checking: Would Dayton's tax-the-rich proposal double the top rate?

Mark Dayton
MinnPost/Bill Kelley
Mark Dayton

During the Tuesday Minnesota Chamber of Commerce debate among guv candidates in Nisswa, IP nominee Tom Horner asserted that DFL nominee Mark Dayton’s tax-the-rich proposal would amount to a “doubling of the tax rate” on the highest-income Minnesotans. Horner said such a move would be a job killer.

In past debates, Dayton has disputed similar assertions and his campaign assures me that that Dayton "will not approach anything approaching a doubling of the top rate" — currently 7.85 percent — in Minnesota’s state income-tax structure. Dayton didn’t object when Horner said it Tuesday but when I contacted the campaign, Dayton said he wished he had objected and would do so whenever anyone claims he will be double the rate.

The trouble is, Horner has no real backup for his statement, but Dayton still hasn't specified what he will do to the top tax bracket other than propose to raise it.

Dayton hopes to extract $4 billion in new revenue from the highest income Minnesotans, which would go a long way to fill in the estimated $6 billion deficit that the next governor will face. And he has proposed to create two new top tax brackets, one affecting individuals with taxable incomes of $130,000 or family incomes above $150,000 and another even higher one for families with much higher incomes. But he has never said what the boundaries would be between the two new brackets, nor what the tax rates would be.

Dayton says he hopes to keep Minnesota’s top rate at or below the 11 percent top marginal rate in Hawaii, which is the highest in the country at present. But that’s expressed as a goal, not a guarantee.

Horner is skeptical that Dayton can raise $4 billion without going higher than 11 percent. He believes it will take a significantly higher rate, amounting to roughly a doubling of the current top rate. “That’s my perception,” he said.

My request to the Horner campaign to back up the "doubling" statement produced a call from Jim Mulder, Horner’s running mate, who, until recently, has been executive director of the Association of Minnesota Counties. Mulder said he believed the state Revenue Deptartment had done a study that showed it would take roughly a doubling of the current top rate to raise as much revenue as Dayton wants to raise. But Kit Borgman of the Revenue Department says no such study exists. Horner says they heard about such a study, but perhaps it was not a formal published paper. In other words, he has no formal backup for what he said in Nisswa.

Dayton says he doesn’t plan to get the entire $4 billion just from the income tax. He also has talked about a change in state law to crack down on snowbirds who spend just enough time in another state that they don’t have to pay Minnesota taxes. He also has talked about a higher property tax bracket that would apply only to million-dollar homes.

Until now, Dayton’s explanation for not specifying the rates has been that he doesn’t have the computer capability to model the whole state tax structure.

Dayton spokester Katie Tinucci also emailed me thus:

“We are currently discussing with the Department of Revenue and the Senate Tax Committee what help they can provide us in modeling different scenarios/options.   We and they are both very sensitive to the fact that we are making our requests as a partisan political campaign, not as ‘concerned citizens.’  Nevertheless, we hope to soon reach agreements, whereby we will be able to submit a limited number of scenarios to one or both of them."

Horner says OK, he remains skeptical of Dayton’s ability to raise $4 billion in new revenue without roughly doubling the current rate, but if Dayton puts out a concrete plan, he will reassess.

Until now, Dayton has won plaudits from me among others for putting out the most specifics about how he proposes balance the 2011-12 budget. His failure to specify a rate is a smudge on this general claim. Horner now says he will put out a complete plan on Monday with plenty of detail. Said Horner:

“The critical issue is not who is doing more negative advertising, or trackers or stalkers or whatever [these are shots at Dayton, who recently complained about negative advertising and trackers] but to put specifics on the table. We have to use this campaign to create mandates for what will have to be done.”

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Comments (36)

The real point is not rates, but actual payments. Because of various loopholes, the 'rich' may have a higher marginal rate but still pay less in terms of actual proportion of income.
Same thing with corporate taxes -- the marginal rates are high, but the actual payments by corporations are much lower. There were years when GM actually received tax rebates!

"During the Tuesday Minnesota Chamber of Commerce debate among guv candidates in Nisswa, IP nominee Tom Horner asserted that DFL nominee Mark Dayton’s tax-the-rich proposal would amount to a “doubling of the tax rate” on the highest-income Minnesotans."

This is the kind of gloss politicians use all the time. Horner, intentionally or unintentionally, isn't distinguishing between the tax rate and the marginal tax rate. The confusion isn't limited to politicians. I have often been told that people will stop earning when they are about to move up to a higher tax bracket because they think that higher tax rate will apply to their entire income, not just the additional dollars they earn which is in fact the case.

Indeed, I’d like to see the specifics of the Dayton tax plan, but I don’t personally have any problem with doubling the tax rate for the upper 5 percent (or less) of the state’s population. The whole point of a “progressive” tax rate is that those who gain the most from the society’s economic activity, and can most easily afford to pay their fair share in the form of higher tax rates, ought to do so.

The argument by Horner and Emmer that higher taxes are “job-killers” seems specious on its face. This is an article of faith among Republicans that has, like religion, no factual basis, and the fact that Minnesota has GAINED jobs, according to the front page of this morning’s ‘Strib, despite being very much a “high-tax” state when compared, as Mr. Emmer likes to do, with Colorado, suggests pretty strongly that tax rates have little or nothing to do with job creation. A small business operator quoted in the ‘Strib story says as much.

The economic climate as a whole, and especially the availability of credit, coupled with a serviceable infrastructure and a viable work force, seem to have far more to do with the creation of jobs than the tax rate.

I cannot wait to see how much extra money the entrenched DFL special interest groups will receive with Mark Dayton's "tax and spend, spread the wealth" policies.

Ray Schoch writes
"The argument by Horner and Emmer that higher taxes are “job-killers” seems specious on its face. This is an article of faith among Republicans that has, like religion, no factual basis"

Agreed. This exaggeration of the influence of tax policy on job creation has gone unchallenged long enough.

I for one am pretty tired of streetlights being out at night, fire departments being cut back, crumbling infrastructure, and the weak getting kicked because they can't kick back. You can't build a first world society on a third world budget, and it doesn't matter how hard you clap, the free market fairy isn't gonna magically fill up state coffers with more and more money the closer the tax rate gets to zero. Top earners are good for it- they can afford to pay more and it's past time they did their part.

#2 Hiram-

"not just the additional dollars they earn which is in fact the case."

Got a link? I'm pretty sure my first $10K is taxed at the same rate my last $10K is.

//I cannot wait to see how much extra money the entrenched DFL special interest groups will receive with Mark Dayton's "tax and spend, spread the wealth" policies.

If Dayton gets everything he wants, and he raises all the dollars he claims he'll raise, he will be balance the budget for real. That doesn't mean the government will be rolling in dough and have all kinds of surplus wealth to "spread" around.

i think it would be a good idea to triple the tax rate on incomes over $250,000 a year.

"Got a link? I'm pretty sure my first $10K is taxed at the same rate my last $10K is."

http://taxes.state.mn.us/individ/pages/filing_your_taxes_filing_requirem...

http://taxes.state.mn.us/individ/Documents/instructions_m1_inst.pdf

If you were married filing jointly with an income of $30k, you paid 5.36%. $40k was 5.65%. The rate changes at $33,280, so for $40k you were paying the lower rate (5.35%) on the first $33,280, and the higher rate (7.05%)on the remaining $6720.

Come on Paul,

When were you born? So why do the "special interests groups" give money to the politicians?

There are no "special interest payoffs" in the budget?

Get real...

(#2) Hiram Foster says:
" Horner, intentionally or unintentionally, isn't distinguishing between the tax rate and the marginal tax rate.

(#7)Tim Larson says:
Got a link? I'm pretty sure my first $10K is taxed at the same rate my last $10K is.

Sorry, Tim. Hiram is right. If you check the total percentage of your taxable income that you pay in taxes, you will see that it is a blend of the lowest and highest rates you encounter.

Arguments for doubling and tripling the top rates for the wealthy rest upon a fallacious assumption -- common to government planners -- that people will be passive recipients of the changes.

Nothing could be further from the truth.

In the real world, if such changes were implemented, the wealthy would be crowding the offices of their financial planners for sophisticated ways of avoiding the tax.

These methods would include such things as investing in triple tax exempt securities, creation of irrevocable trusts, geographical relocation alternatives, tax shelter investments, and various other strategies designed to avoid those taxes.

They might get caught in the first year, but would soon realign their income to avoid the higher marginal tax rates to the maximum extent possible.

Unfortunately, most of those methods would involve removing their wealth (and the jobs it could create), and perhaps their homes, from Minnesota scrutiny.

Wisconsin can be a nice place to live, or if you live on the western edge of the state, North or South Dakota. Or, if you are ready to retire anyway, there are states with NO personal income tax.

Push hard enough, and you can make it happen, with lasting ill effects on the state.

I say, "Be careful what you wish for: you might get it."

I stand corrected. Thanks for the link Eric.

"Unfortunately, most of those methods would involve removing their wealth (and the jobs it could create), and perhaps their homes, from Minnesota scrutiny."

Have you looked at the jobs reports lately? The wealth sure doesn't seem to be creating a lot of jobs while it's here; so perhaps you're overstating the real impact the departure of wealth would have. Which itself is something of a faith based statement.

"Push hard enough, and you can make it happen, with lasting ill effects on the state."

Before moving out here a few years ago, I lived and worked in NYC and had the pleasure of paying one of the highest (if not the highest) tax rates in the country. And yet, you couldn't throw a sesame bagel down the street without hitting at least one millionaire. Somehow, all these wealthy people seemed to keep flocking to NYC and making it their home (okay, one of their homes)despite the tax rates.

Most wealthy people already maximize their tax reducing strategies. So, raising marginal rates is unlikely to lead to a major change of behavior. Sure, some may move to WI, but the working, job-producing ones will still have to commute to their jobs in MN, and will pay commuter taxes accordingly. Unless MN companies move their businesses out of state, this sort of tax flight is unlikely to have a serious impact on jobs.

What did, in fact drive people out of NYC, for a time, were the years of budget crisis in the 1980's that made NYC a less pleasant, less safe place to live. If MN similarly fails to raise sufficient revenues to maintain its infrastructure and to promote the health, safety and welfare of its people, then you will see the kind of ill effects you suggest.

Assuming in future years the state continue to have a base $30.5 billion in tax collection and 46% is from individual collection and collections approximately follow federal collections by income bracket.

Top 1% pays 40.42% of individual collections

Top 5% pays 60.63% of individual collections

Top 10% pays 71.00% of individual collections

To add $4 billion of to any of the aforementioned groups, no individual group would be over need to be double the current top rate of 7.85%. Applied only the top 1% the top rate would need to be approximately 13.38%, the top 5% would be 11.54%, and the top 10% would be 10.998%.

At any of those rates plus the expiration of JGTRRA Minnesota residents will have marginal tax rates in excess of 50% and the capital flight would be unimaginable.

http://www.mmb.state.mn.us/doc/budget/report-pie/general-may10.pdf

http://www.taxfoundation.org/news/show/250.html

"I'm pretty sure my first $10K is taxed at the same rate my last $10K is."

That may be the case, depending on what your tax bracket is. But what Dayton is proposing and what is generally the case when we talk about tax brackets is that they apply to marginal dollars earned. That is, when you move into the next tax bracket, the rate applies to only those dollars earned in excess of those taxed at the rate established in the lower bracket. Is that clearer than mud?

I am rounding off here but basically the DFL proposed a one percent increase in the tax rate for those who earned incomes in excess of 200,000, during the last legislative session. For someone earning 250,000 that would mean a tax increase of $500, that is one percent of the income earned in excess of 200,000, not $2500 which would have been the case had the increase been applied to the entire income.

There is a certain type of personality the possessors of which tend to look at the world through the lenses of "I, Me, Mine," (whether they're wealthy or not). When they do rise to above average levels of resource possession, this comes into play in very striking ways.

Although hundreds if not thousands of people may have been involved in their rise to above average wealth, and may continue to be involved in their daily quality of life, they notice NONE of those people. Thus they wrongly conclude that they did it ALL by their own efforts.

Over the past few decades, people such as these have used their financial resources to try to reshape our state in ways that allowed them to share all the benefits of our quality of life, without contributing their fair share of the resources necessary to maintain that quality of life - a share which would reflect how large is their surplus of resources (above those required for a happy, healthy life).

It is these types of people who may very well head for greener pastures if we raise their taxes to more accurately reflect the benefits they daily receive for living in our state.

We should let them go, because they are, on the average, lousy neighbors, overly-demanding customers, horrible managers, extremely difficult bosses, cheaply chiseling employers and business owners; among the most selfish of our citizens. They seem to expect the rest of the world to kneel down and worship their wonderfulness; that the rest of us owe it THEM to make sure they're always happy (no matter how unreasonable their demands, how impossible they are to please, nor how short lived their happiness when they find it).

Keeping them happy with their level of taxation has never done the state, as a whole, even the slightest bit of good. It has impoverished us (and they still think their taxes are too high).

We should let them go and work their magic in some other state. If a tax increase assists them in making that decision, so be it.

"Until now, Dayton’s explanation for not specifying the rates has been that he doesn’t have the computer capability to model the whole state tax structure"

Dayton, admits the tax rate would be atleast 11%. And he further admits that even a approx 50% increase from 7.65 to 11 will not solve the problem.

Dayton is being dishonest in either way. Either he is lying to us that the top will pay more than 11% or he is lying that others in the lower brackets will not have to pay their "fair share".

Greg Kapphahn:

And how, then, do you expect to survive in a state without these income earners whom you appear to dislike so much?

A marginal tax rate of any size yields not one penny if there is no-one left at that level to pay it.

Please Mr. Dayton just go away!!!!!!!!!!!

//A marginal tax rate of any size yields not one penny if there is no-one left at that level to pay it.

Yeah, Dayton must not know any Minnesota Millionaires, I mean how could he not know they'll all leave MN if he raises their taxes? This is what we get for having a middle class candidate who's never had much money I guess.

//Yeah, Dayton must not know any Minnesota Millionaires,

Oh sure he does Paul. And they're all laughing at how gullible the wealth envy crowd is. By Dayton's own plan he'd be paying whatever the increased rate was on the whopping sum of some $7,000 (from his released return.) That is if his accountants don't dole that seven grand out to charity to avoid it.

Let's face it. When your as rich as Dayton, income is, optional.

Why are you champions of the wealthy so worried about their tax rates if you don't think they're going to pay them anyways?

Because, Paul, it they take the legitimate means of avoiding them the REST of us will have to pony up to cover the shortfall. Duuuh!

A slight aside:
One of the anti Dayton ads mentions 'the Democratic Mayor of Washington D.C.' as criticizing Dayton as a Senator.
I assume that that was Marion Barry.
So, was that before or after Barry's cocaine conviction? Appears the abusers stick together ;-).

//Because, Paul, it they take the legitimate means of avoiding them the REST of us will have to pony up to cover the shortfall. Duuuh!

Ooooh, I see.... so a tax on the wealthy is really a tax on the rest of us. Well, that's not how it works John, if there's a shortfall it's called a "deficit", there's no formula that automatically extracts the difference from the "rest of us".

You can't have it both ways, you can't argue on one hand that the wealthy will be hurt by a higher tax rate and leave the state, and at the same time argue that the wealthy won't pay the higher tax rate so the rest of us will get stuck with the bill. The reality is we have taxes, and we pay them, if the wealthy have a higher tax bracket they'll pay a higher share. This is how it worked when we had 90% tax rates on the wealthy.

//You can't have it both ways

When you dumb down "rich" to 130K for singles and 150K for couples you can have it a lot of ways. The fortunate by happenstance of birth "rich" like Dayton don't need a lot of income. The successful business man or entrepreneur looking to start or expand the businesses that used to drive this economy, does need income.

They will move.

//The reality is we have taxes, and we pay them.

Technically government workers don't pay taxes. Oh, it feels just like it, don't get me wrong. But technically there just refunding previously taxed dollars.

These champions of the wealthy are funny. Faith based trickle down economics drives them to make decisions that are not in their own best interests. They'll pay a higher percentage of their very much smaller income than the wealthy on off chance that their "trickle" will increase. Dependence on that "trickle" drives an irrational fear that the taxing the wealthy will reduce their trickle. Of course they cannot point wealthy people who behave the way they assume, history, analysis, and economics all reveal that tax rates on the wealthy do not produce the results their afraid of, yet they persist.

It's a perfectly circular argument: "Don't tax the wealthy, they'll leave and take their trickle with them and we'll all be doomed." Enter state by state comparisons demonstrating that tax rates do not determine where the wealthy live, or economic prosperity in general; "but the wealthy won't pay the taxes anyways". Enter data showing that higher tax rates deliver higher revenue; "But the wealthy will just leave". And round and round it goes.

Some people just seem to be preoccupied with their own imaginations. Imaginary government, imaginary government workers, imaginary poor, imaginary wealthy, imaginary free markets, and so it goes.

Paul, do you really believe 130/150 is the wealthy?

//Paul, do you really believe 130/150 is the wealthy?

It's not a question of belief, the median income for an individual is $50,000 four person family in MN is around $85,000, that's gross. Dayton is talking about 130+/150+ net, which is 150+/175+ gross. That means the "wealthy" Dayton is talking about are people who make two or three time the median. If you look at the deciles, you see that around 85% of Minnesotan's make less than $136,000 a year. Is someone who makes $130,000 a year Donald Trump wealthy? No, but they're wealthy enough afford more income tax.

http://taxes.state.mn.us/legal_policy/Documents/other_supporting_content...

Ya know I've been having this argument with champions of the wealthy for almost two decades and one thing I've always thought interesting, kinda funny actually; is that the champions of the wealthy are almost never the wealthy. The actual wealthy don't seem to care that much. You never hear Donald Trump, Warren Buffet, Bill Gates, or even Carl Pohlad protest on their own behalf. It's always middle class Joe's that want to defend the income of the wealthy.

It's this strange phenomena whereby people act and vote against their own financial best interest. They fight to maintain a status quo that taxes a higher percentage of their own much smaller income for the benefit of those that make much much more. All they can fall back on by way of explanation is the tortured logic of trickle down economics. I'm willing to bet anyone here five bucks that neither John or Tim make more than $150,000 a year, yet here they are, arguing that they should pay a higher percentage of their income in taxes than the Pohlad's do.

I mean do you really think the CEO of United Health is going to quit his multi-million dollar a year job and move to Alaska because you raised his income tax a few thousand dollars? My experience is that only people who aren't wealthy, think that wealthy people think that way. Frankly, it's kinda bizarre.

And just for the record, I remind everyone that despite all the wealth we've heaped on the top 10% over the last 40 years (and it's a considerable amount of wealth, disparity is now as great or greater than it was during the Gilded Age). The trickle has not grown in any significant way, in fact, it's diminished. With some short respite during the Clinton years, wages and salaries for he majority of Americans have been flat for nearly 40 years. We kept consumption going with debt not increased income, a rooster that has now come home, plopped down on the sofa, and settled in for a good long while.

Basically the problem Republicans like Emmer have is that it's not 1982. We've heard all this before. For 40 years we followed the free market/small government model and none of the promised results ever materialized. There were bubbles, but like all Republican products they were illusions of prosperity. We experienced one recession after another culminating in a second great recession. We've now actually done structural damage to our economic engine and government revenue mechanisms. We've dismantled and moved our production capacity to foreign lands, outsourced our service sector, and decimated our labor force. And Pawlenty's plan is more tax cuts? And Emmer's plan is to cut taxes and surround himself with a handful of advisers who will tell him what he wants to hear. O.K.

It's important also to note that Democrats also participated in this fantasy of magic economies, so you can't blame the Republican's entirely. But some Democrats seem to have realized the mistake. I'm sorry but Horner still doesn't get it.

//No, but they're wealthy enough afford more income tax.

If only there was a market for people willing to spend other people's money...

Ya know I've been having this argument with the wealth envy crowd for almost two decades and one thing I've always thought interesting, kinda sad actually; is that the wealth envy crowd are almost never the wealthy. They never seem to care to work that hard. But for some reason they still feel entitled to a piece of it. Frankly, it's kind of bizarre.

//Ya know I've been having this argument with the wealth envy crowd for almost two decades

Much like the lawyer who represent himself the man who argues with himself is a fool.