Tag Archives: regressive taxation

Scott Jensen’s Unanswered $15,000,000,000 Question

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Minnesota Republican gubernatorial candidate Scott Jensen proposes to eliminate the state income tax.  At first blush, that might sound good to inflation-weary taxpayers. But to balance the state budget, such a change would necessitate $15 billion per year in service cuts and/or increases in other types of more regressive taxes.

Quite irresponsibly, Jensen won’t say what services he would cut, or what taxes he would increase, to balance the state budget.  But make no mistake, serious pain would result.  Jensen’s plan would necessitate massive cuts in education and/or health care, and/or a huge increase in property taxes, or other types of taxes that are more regressive than the state income tax. 

Shifting from the progressive state income tax to the regressive property tax is popular among the wealthiest Minnesotans, because that change would greatly benefit them. The progressive state income tax requires that the wealthiest Minnesotans pay a higher share of their income in taxes than is paid by the poorest Minnesotans.  On the other hand, regressive property, sales, and/or excise taxes put more of a burden on lower-income Minnesotans compared to the wealthiest Minnesotans.

Wealthy doctors like Jensen, multi-millionaire professional athletes like his running mate Matt Birk, and the most financially privileged Minnesotans who disproportionately fund Republican candidates don’t want to pay their fair share in taxes.  This is a political payoff to them.

Jensen’s proposal not only is a grossly inequitable giveaway to the wealthiest Minnesotans, it’s also dishonest.  Jensen only discloses the benefits – no more income tax bill! – without disclosing the costs – crippling school cutbacks, slashed health care services for vulnerable Minnesotans, and/or crushing property tax increases. All of those costs are enormously unpopular with Minnesotans, so Scott Jensen simply refuses to answer that critical $15,000,000,0000 question.

Jensen isn’t explaining the downside of eliminating the state income tax, but reporters should be doing that. Unfortunately, it’s barely happening.  Compared to heavy front page reporting on Walz’s actions related to a nonprofit fraud prosecution and the debate over the number of debates, this hugely consequential policy proposal has received relatively scant coverage.

One exception is the Minnesota Reformer. Though the Reformer has relatively light readership, it has done thoughtful and constructive reporting, such as this: 

“Minnesota has a steeply progressive individual income tax, meaning households with higher incomes have a higher tax rate as a share of their income compared to lower income households. Eliminating individual income taxes would disproportionately burden low-income Minnesotans while giving huge tax cuts to the state’s wealthiest.

‘Progressive income taxes are integral to having budgets that can meet the needs of all citizens, and they’re also really important in ensuring racial and socioeconomic equity,’ said Neva Buktus, state policy analyst for the Institute on Taxation and Economic Policy. ‘Eliminating the personal income tax would completely throw that out the window.’

Each year, the Institute on Taxation and Economic Policy creates a ranking of state tax systems and how they foster income inequality.

The six least equitable in the U.S. are among the nine states with no individual income taxes. Minnesota’s progressive personal income tax makes it one of the least regressive in the country — 47th out of 50. That means our lowest income earners get a better deal than nearly every other American when it comes to state and local taxes. 

‘If you’re going to eliminate the income tax, there’s no way to spin it. It disproportionately benefits the wealthiest Minnesotans by a long shot,’ Buktus said.”

At other major news outlets, my best guess is that reporters are shrugging off the issue relative to other issues because they believe that elimination of the state income tax could never pass the Legislature.   

It’s not reporters’ jobs to gauge likelihood of passage.  After all, no one knows what the future makeup of the Legislature might be if voters sweep Republicans into office, as historical trends portend.  Instead, reporters are supposed to explain the candidates’ major policy proposals and analyze the consequences so voters can make fully informed decisions.

That’s just not happening as much as it should. Whatever the thinking in Twin Cities newsrooms about Jensen’s most radical and reckless policy proposal, their silence on the topic has been deafening. 

Why Have DFL Progressives Stopped Pushing For Progressive Tax Reform?

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Every year, we hear the State Legislature endlessly debate “water cooler” issues, such as Sunday liquor sales and legislator pay. Meanwhile, we hear almost nothing about more fundamental issues of governance, such as whether we have a taxation system that treats Minnesotans fairly.

When you look at Minnesotans’ effective state and local tax rate — the proportion of income paid in combined state and local taxes – it’s clear that we don’t have a progressive system. That is, we don’t a tax system where the rate of taxation increases, or “progresses,” as income increases.  This chart based on Minnesota Department of Revenue data paints a pretty clear picture:

Note: Department of Revenue study authors point out that “effective tax rates in the 1st decile are overstated by an unknown but possibly significant amount.” If you want to know why, there’s an explanation on page seventeen of the study.

However, even disregarding that first bar for the purposes of this discussion, we can certainly say that Minnesota has a state and local tax system that is not very progressive. That is, it is not taxing Minnesotans according to relative ability to pay.

As you can see in this chart, local taxes in Minnesota are particularly regressive.   Compared to other income groups, the wealthiest Minnesotans are paying the smallest share of their income in local taxes.  So if state lawmakers want tax fairness for Minnesotans, and they can’t rely on local officials to reform local taxes, then they need state taxes to be more progressive to offset those regressive local taxes.

Before my conservative friends trot out their tired old “socialism” rhetoric, they should read the words of Adam Smith, the father of free market economic theory who conservatives worship, on the subject of progressive taxation:

“The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess … 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.”

Republicans should also keep in mind that the nation’s first progressive income tax was enacted when the revered father of the Republican Party, Abraham Lincoln signed the Revenue Act of 1862.  A few decades later, Teddy Roosevelt carried on this Republican tradition when he strongly advocated for progressive taxation:

I believe in a graduated income tax on big fortunes, and in . . . a graduated inheritance tax on big fortunes, . . . increasing rapidly in amount with the size of the estate.

The fact is, until relatively recently Republicans were comfortable with much higher top income tax rates than they are today. While the top rate under Democratic Presidents Obama and Clinton was 40%, the top rates were 91% under Republican President Eisenhower, 70% under Republican President Nixon and 70% under Republican President Ford.

So, to my right wing friends, you’re embarrassing yourselves when you call progressive taxation “Marxism.”  For more than a century, progressive taxation was mainstream Republican thought.  Don’t let the uber-wealthy interests who seized control of the Republican Party in more recent years blind you to that fact.

To my friends in the center, spare me the “be reasonable” lectures you deliver every time progressive taxation is proposed.  Unless moderates also view Presidents Eisenhower, Nixon and Ford as wild-eyed extremists, you need to stop characterizing progressive taxation proposals as being somehow “radical.”

Finally, to my progressive friends, show some courage and leadership.  Don’t get so obsessed with shiny objects, like the Sunday liquor sales issue.  Don’t shy away from fighting to make our state and local taxation system more fair.  It’s time for DFLers who are “progressives” in name to become more progressive when it comes to substance.

Minnesota GOP’s Tobacco Tax Cut Is A Killer, Literally

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There is a lot to dislike about the Minnesota Republicans’ tax cuts that were recently signed into law. For instance, increasing the estate tax exemption from $2 million to $3 million is an unnecessarily lavish gift to about 1,000 Minnesotans who won the birth lottery by being born into a relatively wealthy family.  Overall, the Republicans’ tax cuts will compromise Minnesota’s future fiscal stability by reducing state revenue by more than $5 billion over the coming decade. This is a particularly reckless move at a time when President Trump and his Republican congressional supporters are proposing to shift billions of dollars in future costs to states.   The next time Minnesota has a budget shortfall, remember the Republicans’ 2017 tax cuts.

But the stinkiest of the Republicans’ tax cut stink bombs was their tobacco tax cut, because in the coming years it will cause suffering and death.

Think that’s hyperbole?  A mountain of research shows that every time tobacco prices increase, tobacco consumption decreases. The corollary is also true – tobacco consumption increases when tobacco prices decrease.

This is particularly true when it comes to price-sensitive young Americans.

Here’s why that matters:  When tobacco consumption increases, tobacco-related suffering and death increases. Though we don’t hear about it as much as we used to, tobacco use remains the leading cause of preventable diseases and death in America. It causes a variety of deadly cancers, lung diseases, and heart diseases, among other serious health problems.  If you’ve ever seen anyone suffer from one of these illnesses, I promise you will never forget it.

If you don’t believe the legion of public health and economic researchers about tobacco taxes decreasing tobacco use, listen to the tobacco industry executives themselves. In a previously secret document that got disclosed during lawsuits, an executive from Philip Morris, the makers of Marlboro cigarettes, said:

“Of all the concerns, there is one – taxation – that alarms us the most. While marketing restrictions and public and passive smoking [restrictions] do depress volume, in our experience taxation depresses it much more severely.”

Likewise, an executive from RJ Reynolds, makers of Newport and Camel cigarettes, came to the same conclusion:

“If prices were 10% higher, 12-17 incidence [youth smoking] would be 11.9% lower.”

So if Republican legislators think their tobacco tax cut is doing a favor for Minnesota smokers, they couldn’t be more wrong.

Yes, financially speaking, the tobacco tax is regressive. That is, the higher costs of tobacco products that result from tobacco taxes disproportionately impact the pocketbooks of poorer Minnesotans.

But that’s not the end of the story, because the reduction in tobacco-related suffering and death that comes from higher tobacco taxes is progressive. That is, the life-saving health benefits associated with higher tobacco taxes disproportionately flow to poorer Minnesotans.  And by the way, the millions of dollars in savings from not having to pay as much to treat those tobacco-related diseases flow to Minnesota taxpayers and health insurance premium payers.

The bottom line is that cutting tobacco taxes, as Minnesota Republicans did this year, has two major impacts. It causes tobacco executives to profit more from increased sales, and it causes our family members, friends, and neighbors to suffer tobacco-related diseases.

Therefore, when it comes to tobacco taxes, Minnesotan leaders have to be cash cruel to be clinically kind. If the DFL Party wins control of the Minnesota Legislature in 2018, increasing tobacco taxes must be at the very top of their agenda.

Dayton: Even a Flat Tax Better Than Minnesota’s Current Regressive Tax System

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Not so long ago, there was a strong national consensus in favor of progressive taxation.   In the 1980s, conservative Ronald Reagan was running around telling his followers:

 “We’re going to close some of the loopholes that allow some of the wealthy to avoid paying their fair share.  In theory, some of those loopholes were understandable.  But in practice, they sometimes make it possible for millionaires to pay nothing, while a bus driver is paying 10% of his salary, and that’s crazy.

…Do you think the millionaire ought to pay more in taxes than the bus driver or less?

(Crowd:  “More!”)

That was then, but this is now.  Now, conservatives call conservative Reagan’s pro-progressive tax position “socialism” and “anti-American,” a sign of just how radicalized Republicans have gotten in their desperation to pander to conservative talk radio hosts, wealthy donors, and Tea Party primary challengers.

Among the most radical things that Republicans now push is a flat tax.  While a flat tax is attractive at first blush because it is simple compared to the maddeningly complex federal income tax, it is the polar opposite of the progressive income tax that Reagan championed.  While a progressive tax is designed to take a larger percentage from the income of high-income earners than it does from low-income individuals, the flat tax takes the same percentage from everyone, whether you are a bus driver or a billionaire.

As the Founding Father of the modern conservative movement said, “That’s crazy.”

Yesterday in a Minnesota Public Radio interview, Minnesota Governor Dayton made an interesting point on this subject.  When asked what kind of tax reform he favors, Dayton said:

 I still believe in a progressive income tax.  But I sure don’t believe in a regressive income tax, which is what we have now.  …Conservative Senator Rod Grams was always talking about a flat tax.  Well that would be an improvement in Minnesota!  We have less than that now.

Ponder that.  A flat tax – which embodies the radical anti-progressive notion that conservative icon Ronald Reagan not so long ago mocked as “crazy” to the delight of his conservative followers – actually would be an improvement over the regressive tax system that Minnesota currently has on the books today.

Millionaire Mark Dayton is often characterized, by opponents and even by mainstream reporters, as favoring a “soak the rich” ideology.  That’s a silly characterization, because what Dayton actually proposes is not to “soak” the wealthy.  What Dayton recommends is simply a return to the common sense notion of progressive taxation supported by a strong majority of Minnesotans, and even the founder of the modern conservative movement.

 – Loveland