If you’ve complained that your property taxes are rising while lawmakers in St. Paul hold the line on income taxes, you now have documentation in a new study [PDF] the Minnesota Department of Revenue released on Wednesday.
The income tax made up 35.2 percent of all the state and local taxes we Minnesotans paid collectively in 2008. That was down from 37.4 percent in 2006. It is on track to fall even further — to 35 percent in 2013.
So far so good.
But here’s what happened in the meantime: Property taxes made up a good share of the difference, increasing from 30.1 percent of our total tax bill in 2006 to 32.1 percent in 2008. They are projected to rise to 33.1 percent in 2013.
Of course, the 2011 Minnesota Tax Incidence Study doesn’t tell you what to do if you don’t like this trend. That’s a political decision. You could march on city hall or the county government center — and maybe the school board, too — demanding a brake on local spending.
Or you could tell legislators in St. Paul to lift their lid on income taxes.
It might comfort you to note, though, that the overall tax rate we pay in Minnesota has dropped over recent years — from a high of 13 percent in 1994 to 11.5 percent in 2008. And the Revenue Department projects we will hold steady at the 2008 level through the next two years. (Because of technical adjustments, the 2008 rate may be slightly higher, but the general trend in the comparison still holds.)
One reason the overall tax burden has dropped is that state and local governments have reduced spending, not forcing taxpayers to fully compensate for cutbacks in the aid they get from the state.
Between 2000 and 2009, the inflation-adjusted revenues collected by Minnesota’s cities fell by 11 percent, according to a recent report from State Auditor Rebecca Otto. During the same time frame, inflation-adjusted city spending fell by 8 percent.
In that sense, the pressure to lower taxes is working.
Taxing value rather than income
Still, many Minnesotans argue that any shift from income taxes to property taxes is the wrong way to go because the property tax falls more heavily on low- and middle-income families. It is based on the value of a home rather than on the owner’s income. And a good share of the tax on apartment buildings is passed along to renters.
As the following table shows, Minnesota households with incomes higher than about $130,000 pay a higher effective income tax rate than everyone else, but a lower property tax rate on their homes.
Effective tax rate (2008)
|Income range (in dollars)||Personal income tax||Homeowner property tax (before refund)|
|9,795 & under||-1.2%||6.4%|
|9,796 – 16,278||-0.7%||2.6%|
|16,279 – 23,691||0.1%||2.5%|
|23,692 – 31,689||1.1%||2.7%|
|31,690 – 41,161||2.3%||2.6%|
|41,162 – 53,314||3.0%||2.8%|
|53,315 – 68,696||3.4%||2.7%|
|68,697 – 89,936||3.9%
|89,937 – 129,566||4.4%||2.4%|
|129,567 & over||5.4%||1.4%|
Source: Minnesota Department of Revenue
Top pays lower rate but more dollars
Looking at income alone, the study says that taxpayers in the top 10 percent of households bore 38.5 percent of the total tax burden while earning 42 percent of the total income in the state. Meanwhile, those in the bottom 10 percent paid 2.4 percent of the total tax burden while earning 0.9 percent of the income.
That is one reason Gov. Mark Dayton and many other DFLers claim the top earners aren’t paying their fair share.
Seen another way, though, those top taxpayers contribute far beyond their ranks to the state’s overall tax take.
The top 10 percent accounted for 56 percent of the individual income tax collected while the bottom 10 percent paid no income tax. Hence the GOP arguments that those people should not be driven from the state by higher taxes.
Every two years, the Revenue Department examines the overall burden, or effective tax rate, of state and local taxes on households at different income levels. This year’s study is based on tax year 2008 data and the November 2010 forecast.
Here are some other tidbits from the study:
• The consumption tax (chiefly the sales tax) grew slightly as a share of state revenue between 2006 and 2008, from 32.5 percent to 32.7 percent. Thanks to the tough economy, though, that is expected to fall substantially (to 31.8 percent) in 2013.
• The business tax share of total tax revenue fell from 32.1 percent in 2006 to 31.4 percent in 2008. With recovery, it is projected to rise to 32.3 percent in 2013.
• Incomes are expected to grow by only 14 percent between 2008 and 2013. Tax receipts and tax burdens on Minnesotans are also forecast to grow by 14 percent, so the overall effective tax rate is projected to remain unchanged at 11.5 percent.
• The state’s highest-income taxpayers — the 10 percent of households earning more than $130,000 — paid an effective tax rate of 10.3 percent. The remaining 90 percent of low- and middle-income households paid a substantially higher effective tax rate of 12.3 percent.
A copy of the study is available here. [PDF]
Sharon Schmickle writes about national and foreign affairs and science. She can be reached at sschmickle [at] minnpost [dot] com.