Estate Tax Exemption Spotlights Minnesota Republicans’ Twisted Priorities

In the first year that Minnesota Republicans took full control of the Minnesota Legislature, they elevated Minnesota’s millionaire heirs and heiresses to the very top of their fiscal priority list.  Representative Greg Davids (R-Preston) says the wealthiest Minnesotans should be able to “keep more of what their mothers and fathers and grandfathers and grandmothers have earned,” so Republicans significantly increased the’ estate tax exemption for millionaires.

To be clear, we’re talking about filthy rich grandfathers and grandmothers,  After all, only the very wealthiest Minnesota estates pay any estate tax.   According to the Minnesota Public Radio:

“Up until now, your estate would have to be worth more than $1.8 million before the Minnesota estate tax kicked in, but that changed during this year’s legislative session.

The tax bill passed by the Republican-controlled Legislature and reluctantly signed by DFL Gov. Mark Dayton increases the taxable estate value from $1.8 million to $3 million over the next three years. The top tax rate remains at 16 percent.

Minnesota is among 14 states that impose their own estate tax. Farms and family-owned businesses worth up to $5 million are already exempt.”

So, we’re not talking about the four-, five- or even six-figure inheritance you might get from Aunt Gertie.

All of this is being proposed by Republicans at at time when wealth inequality has reached grotesque proportions, as illustrated by this stunning video:

This is how intergenerational privilege perpetuates: Millionaire heirs and heiresses – having done nothing more than winning the birth lottery by being born into a wealthy family — are exempted from taxation, including for wealth that has already avoided taxation because it is unrealized capital gains.

And on it goes, generation after generation. This is how we get the Donald Trumps and Donald Trump, Jr.’s of the world, entitled scions born inches from home plate crowing about their home run.

To state the obvious, because it apparently is no longer obvious to everyone, this is not in keeping with the American value of “all men are created equal,” which used to be all the rage in America. America was founded in defiance of the British system of aristocracy, which gave power to a small, wealthy privileged “ruling class.”  Abolishing aristocratic forms of inheritance was a primary way the founding fathers went about furthering American equality.

While today’s Republican Tea Partiers don Revolutionary War-era tri-corner hats while asserting that the estate tax is “Marxist,” the truth is that the estate tax has been strongly supported by a number of founding fathers.

Remember Thomas Jefferson, the guy who penned “all men are created equal,”  America’s “immortal declaration?” He promoted the egalitarian values of America’s founding fathers by arguing against the passing of property from one generation to the next:

“The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural.“

Jefferson was hardly alone in this opinion. Similar sentiments were expressed by Adam Smith, the hero of conservative free market advocates, as well as Republican Party icon Theodore Roosevelt.

“The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.  The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is passed by men of relatively small means. Therefore, I believe in … a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.”

You might guess that someone like Bill Gates, Sr. would be all-in when it comes to increasing the estate tax exemption. But he eloquently explains why the wealthy people need to pay back the community that supported them:

“No one accumulates a fortune without the help of our society’s investments. How much wealth would exist without America’s unique property rights protections, public infrastructure, and academic institutions? We should celebrate the estate tax as an ‘economic opportunity recycling’ program, where previous generations made investments for us and now it’s our turn to pass on the gift. Strengthening the estate tax is important to our democracy.

Consider all of the other alternative ways Minnesota Republicans could have used the $357 million that they are giving to Minnesota’s wealthiest heirs and heiresses over the next two bienniums. They could have used it to improve our transportation or broadband infrastructure,  help vulnerable children access early learning programs to close our dangerous achievement gaps, or expand clean energy capacity.  Those kinds of investments would have paid benefits for all Minnesotans far into the future.

Instead, Republicans made their top priority lavishing more enormous tax breaks on the small number of ultra-wealthy Minnesotans who least need help.

Governor Dayton has already signed the Republicans’ estate tax exemption, so at this point he has little if any negotiation leverage. But if Democrats take control of state government in 2018, this should be one of the first policies they reverse in 2019.  In the meantime, at every campaign stop they should spotlight this outrageous Republican giveaway to the wealthy elite.

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 magazine reported 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:

MN_Soak_the_Rich_chart

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.

Impact_of_local_taxes_on_tax_burden_by_decileThis 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.

Note:  This post was also published in MinnPost.

Is Legalizing Gay Marriage a Minnesota Jobs Program?

Governor Mark Dayton used his State of the State Address last night to endorse legalizing gay marriage in Minnesota.   And right on cue, Rep. Greg Davids (R-Preston) took the Republicans’ most predictable jab:

 “He’d rather talk about gays getting married instead of getting Minnesotans jobs that could provide for their families.”

We’re going to be hearing a lot more of that claim from Republicans in the weeks to come, so the argument merits dissection. Continue reading