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Tax study kindles policy debate

Date Published: 05/01/2009

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Tax study kindles policy debate

Star Tribune | March 4, 2005
By Dane Smith

Minnesota's national income tax rankings have fallen since 1997 for most income levels and filing types, and the state no longer ranks in the top 10 for married couples earning $250,000 or less, according to a study released Thursday by the Minnesota Taxpayers Association.

The study shows that permanent income tax cuts during an era of budget surpluses about five years ago "have been effective in taking the spotlight off Minnesota's income tax rankings," said MTA director Lynn Reed. At the same time, the state's income taxes remain "sharply progressive," with those earning more than $250,000 still ranking in the top 10 for income tax burden, he said.

The policy message behind the statistics, Reed said, is that any further changes in the income tax should be "across-the-board" and not burdensome only to high incomes, or helpful only to low and middle incomes. The more progressive an income tax is, the less stable it is, subjecting the state to large swings between surpluses and shortfalls during economic cycles, Reed added.

Taking strong exception to the interpretation of the MTA study was Joel Kramer, executive director of Growth & Justice, which describes itself as a "progressive Minnesota think tank on economic issues."

"It's irrelevant ... This illustrates how wrong you can go when you only look at one piece at a time," Kramer, a former Star Tribune publisher, said of the study by the MTA , which is primarily funded by business groups. "You have to look at the whole system together. Almost all the other major taxes hit harder on lower and middle incomes. The result is that the 5 percent at the top do not pay their proportional share."

Kramer's group, several other liberal organizations and leaders of Catholic, Lutheran, Jewish and Islamic faiths have aggressively pushed income tax increases this year as a partial solution to balancing the budget, which faces a deficit, and the most fair way. They argue that many of the budget cuts passed in recent years disproportionately affect low- and middle-income groups. Those pro-tax groups prefer to call their proposals a rolling back of previous cuts, rather than increases.

When Growth & Justice presented its proposal to House and Senate committees last week, it cited a state Revenue Department study showing that the top 1 percent of households -- those earning more than $400,000 -- pay 8.2 percent of their income in total state and local taxes, while all those below about $120,000 pay between 10 percent and 12 percent.

The volatility argument about income taxes is partially valid, Kramer added, but the way to address the problem is to keep larger surpluses during boom times rather than spending the money or handing out excessive, permanent tax cuts.

Despite the falling income tax rankings, Minnesota's relatively high sales tax and moderately high property taxes combined to keep the state's overall tax system in the top 10, but just barely, in the latest federal statistics. In 2002 Minnesota ranked 10th in all taxes as a percentage of personal income. That average bottom-line tax take amounted to 11.2 percent of income.


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