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Dayton offers facts and logic defending his tax plan

If you value straight talk about what a candidate plans to do, based on facts and logic, DFL guv nominee Mark Dayton demonstrated at the Humphrey Institute that he is in a class by himself.

If you are someone who wants to see the state budget deficit addressed mostly or entirely through spending cuts, or if you believe that raising taxes on the wealthiest Minnesotans will destroy the state’s business climate/economy, you won’t be considering Mark Dayton’s candidacy for governor no matter how clearly he explains what he wants to do. But if you value straight talk about what a candidate plans to do, based on facts and logic, DFL guv nominee Mark Dayton demonstrated again today at the Humphrey Institute that he is in a class by himself.

Dayton spoke and answered questions for an hour Monday noon at the Humphrey. Republican nominee Tom Emmer will do the same on Wednesday and Independence Party nominee Tom Horner will follow next Monday.

After Dayton’s opening presentation today, moderator Larry Jacobs of the Humphrey joked that if there was an award for the most detailed and fact-based presentation by a candidate, Dayton would have won it (although, of course, Emmer and Horner could make a run at the award in the week ahead). 

The essential plan — and facts and arguments on which Dayton is running — have been on the table for many months. He wants to extract about $4 billion in additional taxes on the rich. He thinks the pain those tax hikes will inflict on to those folks or to the economy are less than the pain and suffering that would be caused if all or most of the deficit will was addressed through spending cuts.

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(Dayton routinely challenges Emmer — and did so Monday — if he doesn’t want to raise taxes, to specify the cuts he will propose instead, so Minnesotans can decide which is more painful.)

On Monday, Dayton said voters have a choice between one candidate who wants to make the state tax system more progressive and two that want to make it more regressive. Horner has proposed to extend the state sales tax to clothing and services that are now sales-tax exempt. Dayton challenged Horner to be more specific about which services will be covered, and he gave Horner credit for at least indicating a source of new revenue. But sales taxes are regressive.

Emmer says he doesn’t want to raise taxes on anyone and has proposed some new tax cuts for businesses. But Dayton says the Emmer plan will inevitably lead to higher property taxes, which are regressive.

Charts and graphs

Dayton argued, and then attempted to demonstrate with charts and graphs, that America and Minnesota have prospered most during periods of relatively progressive taxation. He adopted an unfortunate mixed metaphor, in which taxes played the role of both the lubricant and the fuel of the economy, to support his summary statement that “progressive taxes constitute a higher quality fuel for our social engine.”

Monday at the Humphrey, Dayton gave a lecture-style presentation that amounted to a rebuttal to the most common criticisms of the plan. There was a three-page handout with three tables and a graph.

Table 1, lifted directly from the official state Tax Incidence Study, confirmed what Dayton has been saying all year. On average, Minnesotans pay about 11.7 percent of their incomes in all state and local taxes combined. When the tax bill is expressed as a percentage of household income, this burden falls most heavily on the lowest-income decile (the tax bite takes 19.3 percent from the poorest 10 percent) of Minnesotans and least heavily on the highest-income decile (10.8 percent). The wealthiest 5 percent pay just 10.4 percent of their incomes in state and local taxes. The wealthiest 1 percent pay just 9.3 percent.

(Some people have expressed skepticism that this could possibly be so. It’s not because the state income tax is regressive. It is not. It is progressive. But most state and local taxes are generated by sales and property taxes and these have a sufficiently regressive impact to shift the total to regressive.)

During his discussion of this issue Monday, Dayton said that average Minnesotans pay about 2.5 times more in sales taxes (again, it’s important to note that this is all expressed as percentage of their incomes, not in absolute dollars) than do the wealthiest, and pay five times more in property taxes than do the wealthy.

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Dayton said Monday that the changes he proposes — higher income taxes on families with taxable incomes above $150,000, a new, higher property tax rate for homes worth more than $1 million, and a new tax aimed at “snowbirds” who spend half of their year in Minnesota but arrange to pay all their state income taxes to a state with lower tax rates where they have their winter homes — will still not change the status quo enough to make the Minnesota system truly progressive, but at least “fair,” meaning that the wealthy will pay roughly the same share of their incomes as average Minnesotans.

The second graphic in Dayton’s handout was from the research staff of the Minnesota House. It showed that the gap between the share of total income, paid in state and local taxes, between the richest and the poorest Minnesota has widened steadily, and significantly from 1990 and 2009.

The third graphic was a simple table showing the top federal marginal income tax rate from 1913 to the present. It demonstrates that the current top bracket rate of 35 percent is low by historical standards considering that as recently as 1980, the top rate was 70 percent and during the 1950s and ’60s it was above 90 percent. Dayton suggests that this shows that high top-marginal income-tax rates are consistent with periods of great prosperity. Personally, I found this one the least impressive.

Given the complexities of the tax code, I’ve never believed that very many Americans were ever paying those famous 90 percent rates. But I’m less skeptical of Dayton’s takeaway. I don’t believe that low taxes on rich people are the ticket to prosperity for un-rich people nor that high taxes on the rich ensure economic stagnation and decline.

The two most recent economic booms — in the mid-1980s after the Reagan tax cuts, which disproportionately benefitted the rich, and the mid-to-late ’90s after Bill Clinton significantly raised taxes on the high incomes — plus the economic disaster of the late Bush years despite a new round of tax cuts that disproportionately benefitted the rich, would seem to at least complicate the task of those who believe tax cuts for the wealthy creates a rising tide that lifts all boats.

The fourth table in the Dayton handout simply showed the top marginal rate in Minnesota’s tax code for every year since 1970. This one was also messy, because of various change in the way state income taxes are calculated — although it showed the Minnesota had a higher top marginal rate in a period when it was more prosperous than now.

Dayton backed this table up with a statement that if his plan is fully implemented, Minnesotans in the top decile will merely pay the same portion of their incomes in state and local taxes as they did in 1994, when Arne Carlson was governor.

(By the way, since the big political development of the morning was former Gov. Carlson’s endorsement of Horner, the reporters covering the Humphrey event asked Dayton what he made of the endorsement. He replied: “That they’re both Republicans.”)

The reference to the 1984 tax rates was clearly an effort by Dayton to suggest that his plan was not some unprecedented Bolshevik assault on the rich.

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In concluding his opening presentation, Dayton said he didn’t have some big grudge against the rich as some of his critics suggest but rather — quoting the Sen. Paul Wellstone’s aphorism that “we all do better when we all do better” — Dayton said he simply believes “there are those who can afford to contribute more so that we can all do better.”

Hints of bad news

During the Q-and-A with Jacobs, Dayton hinted at some bad news ahead (and he seemed to firm this up slightly, although he gave no details, during a brief hallway exchange with reporters after his talk) for his plan.

Dayton has pledged that he will not propose a new top marginal rate for Minnesota that would be the highest in the nation. Hawaii has the current highest rate, at 11 percent. Dayton has never specified what the rates would be in his plan (which is certainly a mark against his general claim to have the most specific plan) but is currently working with the state Revenue Department to get more specific estimates on how much revenue he could raise with a new top tax rate.

He told Jacobs that he won’t raise the whole $4 billion he seeks from the taxes he has specified so far, and during his presentation he told the audience that he is “looking for suggestions” of other revenue-raising ideas that will be consistent with his overall determination to make the state tax system more progressive.

He also told the press gaggle in the hallway that he may not release the figures he gets from the Revenue Department on his plan, suggesting that it was getting to be unfair that he is so transparent about his taxing and spending proposals while Emmer continues to be so mysterious.

Jacobs offered Dayton a chance to respond to some of the usual objections to his plan. For example: Is he engaging in class warfare? Replied Dayton: If so, “I didn’t start the war.” He then referred to all the successful efforts over recent years to lower taxes on the wealthy.

What about the idea that raising taxes on the wealthy, many of whom are business owners, will deter them from hiring new workers? Dayton said that amounts to “holding the public interest hostage” to extort tax relief for those who need it least.

What about the idea that a high top tax rate will induce wealthy Minnesotans to flee the state, taking their tax money with them and doing more good than harm? Dayton said that as a child of a wealthy Minnesota family, he had been raised to believe that he had an obligation to give back to the community. He simply refused to believe that Minnesotans would flee the state and fire their work force to avoid a hike of 3 percent in the tax rate they paid on their highest portion of income. He called that idea “un-Minnesotan.”

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Dayton is seldom a stemwinding speaker and often seems ill-at-ease in public. Today, he seemed comfortably professorial during his solo presentation. His facial expressions during the Q-and-A were more awkward, although he was absolutely ready with quite a substantive answer to every question. And he did show the occasional flash of humor. When Jacobs asked him if he was open to raising any revenue through an expansion of gambling, Dayton first said that personally “I found a surer way to lose my money, which is through politics.”