They’re getting smaller. But the tax hikes proposed by DFLers at the Minnesota state capitol are still around, despite a run of pretty good news about revenue and the economy over the last three months.
Gov. Tim Walz’s first budget request came with $1.6 billion in proposed tax hikes. Portraying the increases as a tax on the wealthy, Walz said the money was needed for a series of ongoing programs that would help the state following the COVID-19 recession. That plan came before several changes to the state’s finances, though: tax collections — and forecasts of future tax collections — have steadily improved; projected deficits have been replaced by surpluses, and the federal government has passed yet another stimulus package that will send billions of dollars to Minnesota’s state and local governments.
In March, that $1.6 billion tax hike request became a $670 million tax hike, with Walz using some of the tax-the-wealthy tax revenue to reduce taxes due on COVID-19 benefits like paycheck protection plan loans and enhanced unemployment insurance while keeping most of his tax hikes on high earners and corporations.
Monday, it was House DFLers’ turn to present a plan. Their tax proposal is smaller than the governor’s first try — or his second. In fact, on paper, it is a zero dollar increase, at least for the upcoming two-year budget, due to the presence of both tax hikes and tax cuts. But since the additions are permanent, and many of the cuts are one-time only, the future impact on revenue will be an increase.
Gone from the House DFL plan, for example, is the Walz proposal to increase the rate of the state tax on corporate profits and a hike in the capital gains tax. Still around is a new fifth income tax tier, this one applying to residents earning $500,000 or more and couples earning $1 million or more. It is similar to Walz’s plan though it has higher rates and would raise $563 million over two years compared to $400 million under the Walz plan.
The House would also raise $400 million by taxing corporate income when it is brought back to the state from other countries. That increased revenue is spent in the next budget on tax forgiveness on most PPP loans and the first $10,200 in the COVID unemployment insurance top off.
The House DFL tax plan also has a series of other smaller cuts and tax credits. It expands the working family tax credit; increases the refund for property taxes paid by lower-income renters and homeowners; conforms with the recent federal change to allow a flat $300 charitable deduction; and would allow a tax refund to restaurants for the costs of abiding by COVID guidelines.
Despite having different methods and different amounts, DFL lawmakers’ messaging about the proposal has been similar to Walz’s on his: the COVID recession hit different income groups differently, and those who did okay should be helping raise revenue for programs to help those who fared worse. It is the “fair-share” narrative that is being used by Democrats in states across the U.S., including President Biden in his pitch for an infrastructure plan.
House Speaker Melissa Hortman, DFL-Brooklyn Park, referred to the tax increases as “progressive revenue.”
“We’re raising sustainable, progressive revenue in our tax bill to make sure we can back up the commitments we’re making to students and families and workers today,” she said.
[image_caption]State Rep. Ryan Winkler[/image_caption]
“Minnesotans understand that the biggest corporations and the wealthy have done extremely well during this pandemic, so the House DFL has put together a tax bill that levels the playing field and pays for important investments in people,” said Rep. Paul Marquart, the House Taxes Committee chair from Dilworth.
Hortman didn’t exactly dismiss the projected $1.6 billion surplus for the next biennium, the $2.24 billion rainy day savings account or the $2.6 billion in flexible money flowing directly to the state from the federal American Rescue Plan. But she called such funds “one-time dollars” that couldn’t be counted on to pay the ongoing costs of the House DFL budget bills.
The proposal would increase the state distribution of funds to school districts by 2 percent for each of the next two years (Walz had proposed 1 percent the first year and 2.5 percent the second). It also maintains funding for voluntary pre-kindergarten enrollments for 4,000 students and increases money for community schools and mental health counseling in schools. In higher education, the proposal would increase funding for financial aid and keep tuition the same at Minnesota State campuses
[image_caption]State Rep. Paul Marquart[/image_caption]
Yet except in the case of the child care budget, which benefits from specific funding in the federal American Rescue Plan, the House DFL budgets will not spend any of the $2.6 billion in direct cash to the state. House Ways and Means Chair Rena Moran, DFL-St Paul, said the state is waiting for federal guidance on how the money can be spent.
Lawmakers may come back later in the session with changes if that guidance arrives in time, Moran said. Otherwise, the spending will flow through the existing Legislative Advisory Committee process, which gives most spending authority to the governor. That is how all of the federal funding from the 2020 CARES Act was spent.
Walz and legislative DFLers don’t think the federal funds should change their taxing calculations. But legislative Republicans think it already has. No tax increases was the centerpiece of the 2021 agendas for the House and Senate GOP caucuses — and that was before an improved state economic and revenue forecast and the $1.9 trillion American Rescue Plan.
The Senate GOP budget targets also include a desire to seek budget cuts in each budget area. Republicans have also called for complete PPP tax forgiveness, rather than what Walz or the DFL is proposing: to exempt the first $350,000 in loans. The federal government will not tax PPP loans at all.
A statement released Monday by the ranking Republican on the House Taxes Committee, Rep. Greg Davids of Preston, sums up the GOP stance on the DFL tax increases. “Democrats don’t seem to understand that we have a $1.6 billion surplus and billions more coming from the federal government,” Davids said.
He said tax increases will hurt businesses that have struggled over the last year and harm hiring. “Fortunately, these tax hikes are dead on arrival in the Senate, and have no chance of passing this year,” Davids said.
“Nationwide, it takes an annual income of $538,926 to be among the top 1%. Among the approximately 1.4 million taxpayers who meet this threshold, the average annual income is about $1.7 million – about 20 times the average income of $82,535 among all taxpayers. ” report from US Today
We also recently learned that the top 1% fail to report 20% of their income – reporting on only 80%. If you apply percent to the $1.7 million, on average, they are underreporting their income by $425,000, almost 5 times the average income of all tax payers. If you assume a 40% rate on combined state and federal taxes, that is an average tax fraud of more than $100,000 per year. Do that for ten years and your take is a “hot” $1 million. Of course, one has to assume that some of the top 1% are not cheaters. If only half cheat, the cheaters are getting twice this take.
Of course, the first priority should be bringing these criminals to justice, but the way that Republicans have starved the IRS makes that very difficult. Adding a higher bracket is a way to claw back some of this money. Of course, if wealthy but honest tax payers don’t like having to pay more to cover the money the government loses from major tax evaders, they can support more funding for the IRS and encouraging it to aggressively target those who have the best opportunity to shield wealth, such as real estate developers like Trump.
Democrats need to make it clear that special brackets are needed for those with extremely high incomes that are in the best position to write favorable tax proposals, buy politicians who will support them and force the government to cut services, raise fees and borrow money to finance these well heeled fraudsters.
Or another option is they can move. Many who comment on this site say good riddance if you do. You fail to understand the cost of doing business in every single state that surrounds MN is much lower. My businesses were in WI and MN. It fluctuated, but the difference in taxes due was usually 20-25% higher in MN. The biggest difference was commercial property taxes. And yes, I moved to FL and changed my residency. Best move I’ve ever made. I still come back for the summers. BTW, property taxes are much higher if you own property in MN but aren’t a resident. I think that’s very fair.
“Or another option is they can move.”
It’s called “voting with your feet.”
“Many who comment on this site say good riddance if you do.”
Many who comment on this site are sick to death of the people whose wealth-building was helped by the social structure built with taxes and then leave the state, coming back only to flaunt their affluence.
Still no interest in removing the tax on social security benefits. The DFL’s bureaucracy needs that money more than your grandmother does, apparently.
Since SS benefits are a federal program, the states DFL has nothing whatsoever to do with taxing those benefits. Good try however.
Minnesota’s state income tax is what I’m referring to. Minnesota is one of only 13 states that tax social security benefits.
Still waiting for a legislative program from the state GOP that’s not centered on tax cuts. There ain’t no free lunch, so taking money from programs that invest in Minnesota’s future (e.g., education, which hasn’t been fully funded for at least a decade) simply diminishes what’s available for those investments in the state. The wealthy, like everyone else, will always do what they can – which is often quite a bit – to protect their income, and since they have more leverage at the legislature, particularly with Republicans, it’s no surprise that tax avoidance is a guiding principle. That doesn’t make it ethical or equitable.
So because some people have more money it is perfectly acceptable to just force them to give more. The highest tax payers pay the large majority of the taxes anyway. We recently went through the largest tax increase in our state’s history and the liberals want more. Our state seems to have weathered this covd storm and has a ton of money coming from the Fed but yet the appetite for more money still is not been appeased.
Well yes, when one is looking to raise money, one generally doesn’t look to those who don’t have it to do so.
“So because some people have more money it is perfectly acceptable to just force them to give more.”
We’ve been through this already, but the wealthy have reaped more from our civil society and have more at stake in its preservation.
“We recently went through the largest tax increase in our state’s history and the liberals want more.”
Arguably, the largest tax increase in the state’s history was the imposition of the sales tax in 1967. At the time, the Conservatives controlled the Legislature.
But a sales tax is the fairest tax because everyone pays the same percentage and the rich pay the most because they spend the most. An income tax spares the rich since most wealthy people don’t draw a paycheck. It’s actually a tax on middleclass labor. So it’s not surprising that conservatives would favor the sales tax over an income tax.
A sales tax is the most regressive tax because poor people spend more of their income. That is basic tax policy.
Poor people pay more for a loaf of bread and a gallon of gas too. That’s basic capitalism. Paying progressive tax rates is your basic Marxism.
I’ve said this before, and I’ll say it again: Capitalist icon Adam Smith regarded progressive taxation as a no-brainer, worth only passing mention in Book V of The Wealth of Nations (“it is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion”). It’s basic industrial capitalism.
The first progressive income tax (as opposed to a progressive property tax) was levied in England while undoubted Bolshevik William Pitt the Younger was Prime minister. The truly amazing thing is that he accomplished this feat of basic Marxism some 20 years before Marx was born. In the US, the first progressive income tax was imposed by Abraham Lincoln who, according to a certain failed candidate for re-election as President, was a Republican.
BP, can’t we be honest about these topics? Your false equivalency is intellectually dishonest. If you have any sense about the tax code you will easily see how rich folks get richer, and poor folks stay poor. Need examples let me know, you know like deducting private airplanes as a legitimate business expense! What do you think is in those 2600 pages of tax code?
Well I keep going back to “We the people….” not me the person, and the signers “We Mutually Pledge To Each Other Our Lives, Our Fortunes And Our Sacred Honor”. Seems our forefathers/founders had a lot more sense of country, honor, etc. than many folks do today.