About that ‘soaking’ of Minnesota’s rich

For a long time, we’ve been hearing about how Governor Mark Dayton and DFL legislators “soaked the rich” back in 2013. That’s become the conventional wisdom at both the state and national levels, from both liberals and conservatives.

For example, at the national level, Patrick Caldwell from liberal Mother Jones magazinereported that Dayton ran on a “soak-the-rich platform of massively hiking income taxes on the wealthiest people in the state.”

Locally, conservative columnists Joe Soucheray and Katherine Kersten have long been beating the “soak the rich” rhetoricial drum, as has the conservative Pioneer Press editorial board:

“What’s the plan? Tax the rich, then tax the rich again, then tax the rich again?”

Finally, the Chair of the Minnesota House Tax Committee, Greg Davids, is among many conservative state legislators who have used “soak-the-rich” rhetoric to full effect.

Is the ‘soak’ rhetoric true?

But did Governor Dayton’s 2013 tax increase on individuals earning over $150,000 and couples earning over $250,000 actually “soak” them in any meaningful way. This chart, derived from the Minnesota Department of Revenue’s 2015 Tax Incidence Study, calls that conventional wisdom into question:

This chart shows that the highest earning Minnesotans will only be paying a slightly higher proportion of their income in state and local taxes in 2017 than they did in 2012, under the rates in place before the 2013 tax increase. In 2012, the highest income Minnesotans were paying 10.5 percent of their income in state and local taxes. By 2017, the projection is that the highest income Minnesotans will see their state and local tax burden inch up to 10.7 percent.  This 0.2 percent increase hardly represents punitive “soaking.”

On a somewhat related issue, the chart also shows that the 10 percent of Minnesotans with the highest incomes look to be paying a much smaller share of their income in state and local taxes (10.7 percent) than the decile with the lowest incomes  (26.4 percent). However, on this point, the report contains an important caveat about the first decile data (page 17):

“…effective tax rates in the first decile are overstated by an unknown but possibly significant amount.”

But back to my original and primary point, which is not impacted by this caveat:  Despite all of the wailing and gnashing about the alleged mistreatment of the highest income Minnesotans, the impact of the Dayton-era tax increase on top earners’ overall state and local tax will be negligible.  Higher taxes on top earners didn’t cause the massive job losses that conservatives promised — Minnesota currently has the fifth lowest unemployment in the nation — and they didn’t soak anyone.

Don’t forget about local taxes

How is it that Minnesota’s top earners are paying higher taxes, yet still are paying a lower share of state and local taxes than any other income grouping? Part of the reason is that the top 10 percent will only be paying only 2.2 percent of their income in local taxes in 2017, which is much less than the 3.1 percent share of local taxes that will be paid by the average Minnesotans, and less still than the share of local taxes paid by the lowest-income Minnesotans.

This is a point that is frequently missed, or intentionally ignored, by people who focus solely on state tax burdens, without also taking local tax burdens into consideration.

So, did Mark Dayton really “soak-the-rich” when he increased taxes by $2.1 billion in 2013?   Inflated rhetoric aside, it turns out that the Dayton tax increase was more akin to a light misting than the predicted soaking.

This post was written by Joe Loveland and originally published on Wry Wing Politics.

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Comments (4)

  1. Submitted by joe smith on 08/30/2015 - 07:06 am.

    It is not about the 10.5 vs 10.7 increase in taxes that MN has in place, it is the 10.7% vs 0 in Texas, Florida and other states. Folks who earn enough to be in the highest tax bracket have the ability to pick up and move. Let’s see if there is a drop in the highest earners paying MN state tax by moving to other states in the next few yrs. This has been the case in other states that have the highest state taxes.

    • Submitted by Karen Sandness on 09/01/2015 - 05:31 pm.

      If you’re that rich, is it really worth living in Florida or

      Texas, one a sad, low-lying pile of sand and scrubby swamp that reverts to swamp unless humans constantly tend it, the state that seems to produce more “news of the weird” than any other state; the other a state which, despite islands of culture, seems to pride itself on being mean and dumb and provincial?

      Come to think of it, we could use higher taxes to get rid of the stupider rich people, the ones who think ONLY about their tax rates and not about any other considerations, and attract some smarter rich people, who understand that quality of life comes with a price tag and are willing to pay a tiny percentage of their wealth to support it.

  2. Submitted by Raj Maddali on 08/30/2015 - 08:31 am.

    Selective Statistics

    The author uses of statistics to “prove” his point that the tax rates at the top are not high enough. Of course people at lower tax brackets are going to spend a higher percent of their income on housing , food and property taxes. Minnesota is not Manhattan where people are forced to buy expensive housing. However many people do spend a large amount of their incomes on buying bigger houses, cars, etc. That is volunatry behavior and is being counted as “taxes”.

    Shall we then add education expenses that the ‘rich” (a family with two programmers) spend on their children when they send them to college ? Cause after all those “rich” children don’t qualify for any financial aid ? Why just stop at housing taxes ?

    If a family with say $80K in income buys a house beyond their means , is that the fault of the “rich” ?

  3. Submitted by Tom Anderson on 08/30/2015 - 06:38 pm.

    Don’t forget that the $2.1 billion

    Tax increase was only signed by the Governor, it was proposed and implemented by the Legislature. And really, what is $2.1 BILLION dollars, as long as it isn’t YOUR money?

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