The Star Tribune ran a great editorial today titled “Pawlenty gets in way of fairer tax systems.” The argument made essentially boils down to the sub-headline:
Here’s an excerpt, but you really should read the whole thing here:
With Tuesday’s veto, Pawlenty said no to direct property tax relief for 90 percent of the state’s homeowners, in order to allow the state’s top 28,000 earners to keep paying an effective tax rate lower than the one borne by middle earners — and dropping by the year.
The Republican governor’s veto was no surprise. But it is deeply disappointing.
It keeps Minnesota on a road toward more regressive taxation .That’s the wrong road for this state. States with regressive tax burdens — that is, those that pile a disproportionate load on low- and middle-income earners — tend to be low-tax, low-services states. That stands to reason. People who feel unfairly burdened by taxes tend to become antitax voters.
Regressive-tax states have not performed as well economically in recent years as have states with taxes that are higher and more progressive . Significantly, high-tax states have higher average per capita after-tax incomes than low-tax states have. That, too, stands to reason. Higher-taxed states provide the kind of public services that attract knowledge-based, high-wage businesses. [emphasis mine]
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This is the same Star Tribune who editorialized in favor of the gas tax and its accompanying wheelage taxes - license plate tab increases and metro wide sales tax increase, in favor of cigarette taxes, in favor of raising sales taxes to pay for the Twins Stadium with no vote from Hennepin County residents. The Strib is really doing a lot to help the Middle Class pay less in taxes, aren’t they?
The solution to a “fairer” tax system isn’t hiking the income taxes of wealthy people. The solution is to stop taxing the middle class. As I’ve pointed out before: our sales tax was raised in 1991 from 6% to 6.5%. The tax was raised because we had a deficit in 1991 and the legislature and Governor Carlson promised to end the sales tax increase when the deficit went away. It’s been 16 years and we are still paying for the 1991 deficits. That’s just one way to stop squeezing the middle class.
The DFL property tax relief is a scam. The DFL can’t reduce property tax because they don’t have the power to do so. They claim that increased LGA will do the trick but local governments don’t have any reason to lower property taxes just because the state cuts them a bigger check.
In the end the DFL is doing its best to send big LGA checks to their strongholds of Minneapolis and Saint Paul and call it property tax relief. This along with the increases to the gas tax, wheelage and license tab fees the DFLs plan would create a tax structure that is less progressive the current one.
By only talking one tax at a time what they are doing looks like a swindle to people paying attention. Well at least those who are not DFL ideologues. The fact Strib won’t deal with these issues as a whole rather than just repeating the DFL press releases is a perfect example why many people view them as biased.
Kerosene Hat,
You are absolutely right. In 2003 and 2004, Minneapolis received cuts in LGA of $30 million each year. In 2006, the legislature gave Minneapolis some $90 million as a pay back of the $60 million that was cut. Guess what, property taxes still went up.
This editorial is pure non-sense. If the Strib was as concerned as its editorial board claims to be about the tax burden on the middle class, then it would write editorials opposing increases to the sales tax, the gas tax, the wheelage tax, the deed tax, and car tab fees. All of these tax increases were proposed by the DFL, and the tax burden these tax increases would create on the middle class would far outweigh the measly property tax relief proposed by the DFL in their redistributionist ponzi scheme.
Chris, is any amount of any kind of tax acceptable to you? Just asking. And if you believe that some kind of tax is necessary, what do you think should be paid for and what shouldn’t?
What should be done is to abolish the State income Tax all together, keep the Sales Tax where it is, and put food and clothing on the list of items to be taxed. Leave Prescription Drugs exempt. Then people can stop bitching about the regressive tax system. Then Tax revenues will increse at greater rates and there will be plenty of money for Roads, Bridges, Programs, etc.
Max,
Obviously the state needs money to function. I think this state’s legislature feels like it needs a lot more money to function than it actually needs, but I will leave that argument aside for the purpose of answering your question.
To the extent that there needs to be taxation, the kinds and levels of taxation need to be keyed to economic principles. In other words, taxation should never hurt economic growth and job creation. Let me start with taxes that aren’t necessarily evil: property taxes. People are closest to their local governments and therefore have more accountability over their actions. They also benefit most directly from the services they receive from local governments such as police, fire protection, streets, parks, wastewater treatment, etc. Except for when communities try to put those services on businesses by raising commercial/industrial taxes (which can drive out employers), generally speaking property taxes are at least somewhat fair. It absolutely puzzles me why people on this site complain that someone else (including people who don’t even live in their communities) should be subsidizing their property taxes.
Let me quickly comment about the other taxes: gas taxes and license tab fees are necessary to build and maintain roads. Those taxes should not be raised at this time because of the high cost of fuel, which has a drag on the economy, and because there are other ways of building $1.7 billion in roads without raising taxes. State sales taxes should be lowered to the pre-1991 level of 6%. If sales taxes continue to be raised, it will drive people away from making in state purchases in favor of internet purchases. I do not object to an income tax per se. But the level of taxation should never be punitive and needs to take into account economic principles. You should never take money away from people such that it prevents them from growing their businesses and hiring new employees. That said, states like Florida do not have an income tax at all and rely solely on property taxes to fund the state.
The bottom line is that while taxes are a necessary evil, the money is almost always better spent by individuals and families than by government. Sorry this post got so long winded, but I wanted to thoroughly answer your question.
kathy,
I have to give you your due credit for thinking outside the box. Your idea about taxation is very interesting and something I think a lot of people would support.
Chris,
Thanks for your thoughts. Now what about education (since that’s currently a huge part of the budget)? How should that be funded? Or should it be completely privatized? And if so, who pays for that? Do you think that a good education system benefits the state as a whole or should only people with kids in school pay into the public school system (this is what I hear from my Republican neighbors - I have no kids in school, why should I pay)?
Then what do we do with all the federal regulations and mandates that aren’t funded? Who should pay for those? And does the state have any obligation to higher education or should each student have to pay their own way without any state aid for public universities?
Kathy — Sales taxes are more regressive than income taxes, not less. People with lower incomes must spend all or nearly all of their income just to meet the necessities of living, with the result that they end up paying taxes on all that they earn. By contrast, higher income people tend to spend a smaller proportion of their incomes, and so pay a smaller percentage in taxes (although the dollar amout may be larger).
To take one example, Washington state has no income tax, but relies heavily on the sales tax. In Washington, the poorest 20% of taxpayers pay 17.5% of their income in taxes. The richest 1% pay 3.3%.
The argument about whether this arrangement is fair is an entirely different matter, and we can (and I’m sure, will) argue about that until we are blue in our faces. The point I want to make is that sales taxes will not make the tax system any less regressive.
Sales tax can be made as progressive as desired. If clothing, housing and health care under a certain value along with all food are exempted it becomes a very progressive tax. This is because the lower a persons income the more they spend on things that are not taxed. It is also a good way to do things because it gives people incentive to consume efficiently and increase their savings. The best part is that it is completely transparent and harder to manipulate to favor special interests.
Max,
Interesting question about education. Do I think privitizing education completely should be a goal in our state? No. In fact, public education is mandated in our state’s Constitution. At the same time, I do think we should give some parents — especially parents of children currently being educated in failing schools — some degree of choice.
As for the funding of education, which was your question, ever since the Ventura administration funding for education has been removed from property taxes. The only exception to that law is when voters in a school district pass a local levy that gets put onto the property taxes. Schools are then funded completely by the state based on a very complicated formula that tends to favor schools in Minneapolis, St. Paul and Duluth by giving those schools a significantly higher amount of funding per pupil. Minneapolis gets more than $13,000 per pupil.
My solution to education funding is to get rid of the complicated funding formula and give schools more even funding. There is no question in my mind that a classroom of third graders should not be worth $130,000 more in funding in Minneapolis than in Mankato or Marshall. I’m not saying that schools with special needs shouldn’t get a little more funding than other schools. But Minneapolis is a failing school system that spends huge amounts of money. I don’t think giving them even more money will solve their institutional problems.
Sorry about the long winded answer. Let me know what you think.
Chris — I think you underestimate the level of funding needed by schools with special needs. I agree that there is nothing intrinsically more valuable about Minneapolis third-graders than those in Mankato or Marshall. Minneapolis, however, has a higher number of students who are learning English or who have other special educational needs (solely due to the larger population, I would guess). Meeting the needs of those students costs significantly more than educating other children. The numbers may not seem entirely fair (how reliable is pricing education strictly on a per-student basis, anyway? Are we comparing apples to oranges?), but there is some reason behind them.
I also hesitate to call Minneapolis schools “failing.” Their test results are not as good as in the more affluent suburbs, and the buildings aren’t as pretty, but public schools are not much more than a reflection of the society that created them.
Kathy, your idea is absolutely cracked. Adding food to the list of taxable items via sales tax makes the system more regressive, not less! Abolition of the state income tax would be the biggest giveaway to the rich in this state in history. You would be annihilating the Minnesota Miracle and turning back the clock to age of the robber barons. David Strom would be most proud!
Kerosene Hat, local government units are raising property taxes to meet basic needs. With the state cutting their support at every turn over the past few years, they’ve had ot make it up somewhere; they don’t get to run deficits, and provide essential services like police, fire, schools, and sewers. They have nothing left to cut, there is no fat in their budgets! To support T-Paw’s ill-advised cuts to LGA, the GOP’s state auditor listed things like libraries as non-essential services in order to claim that no one would be hurt by the cuts that were made solely to maintain T-Paw’s fidelity to the MN Taxpayer’s League, not for the best interests of the state. the only way property tax relief is coming is via the state and increased LGA. Local units aren’t going to keep cranking them up if they actually get the cash they need! They’re not stupid.
And you can’t make a sales tax “progressive”, at least not enough to make any significant difference. Lower income families will always end up having to spend more of their income.
The StarTrib got it right (pretending it’s a communist organ won’t change it); Pawlenty has the state on track for a more regressive system of taxation than we have been, and it’s exactly what he wants. You can argue all you want as to what is the best course for the state, but there is no doubt as to the path he is trying to set us on.
It’s a race to the bottom. The Tax avoiders league wants Minnesota to be a low tax state like Mississippi with all the quality of services that Mississippi enjoys.
Richard,
You’ve got to be joking. The budget proposed by Pawlenty is a record budget for the State of Minnesota and includes a 9% increase in spending. How does that race us to the bottom? Your solution of increasing taxes would drive employers out of the state and make us like like Rhode Island or Massachusetts (also high taxed states) with higher unemployment rates.
States like Nevada, Florida, Texas, Arizona, and others for sure, do not have State Income Taxes. Everything is taxed except Prescription Drugs. Yet these states are experiencing increased migrations, epsecially Nevada with Las Vegas as the fastest growing city in the US.
It was just a thought, geez!!!
Kathy — Nevada has sources of revenue that, while often advocated, are not likely to be replicated in Minnesota. Florida has the second most regressive tax system of any state in the Union, and Texas comes in third (Washington is the first, BTW).
The states with the most progressive tax codes are those that rely the least on the sales tax. Delaware and Montana have no sales tax, and Vermont has a very progressive income tax, but relies only minimally on the sales tax. California (the other state in the top four for progressivity) has the most progressive state income tax in the nation.
Josh,
The DFL tax proposal would make the tax system in Minnesota less progressive. Even if their claim that additional LGA funded by the new income tax tier on higher incomes would reduce property taxes were true. Their proposed increases in gas and sales taxes with higher license and wheelage fees would more than offset even the most generous estimates of how much low and middle income people would save on property taxes. By the way many low income people rent and therefore would see even less chance of enjoying tax relief through additional LGA. Then there is the fact that property taxes will not go down for the reasons I stated earlier. You proved my point when you talked about how much the cities needed money for basic services. If this is true there is no way a small additional amount from the state will cause them to reduce their tax rate on property. The DFL is not telling the truth about wanting to change how progressive the total tax burden is. If this really is a goal of yours you would oppose their plan along with Pawlenty’s.
You say “you can’t make a sales tax “progressive”, at least not enough to make any significant difference. Lower income families will always end up having to spend more of their income.” What do you consider enough of a difference? What do you mean when you say “more of their income”, more than who? If you want to see a certain progressive rate to exist I think you should tell us what it is and defend it rather than simply attack what does exist.
“Pawlenty has the state on track for a more regressive system of taxation than we have been, and it’s exactly what he wants. ”
Simply not true.
Pawlenty believes that we have plenty of taxes coming in and has advocated leaving all taxes as they are - this doesn’t make for a “more regressive system” as you claim.
The biggest issue is that more revenue (taxes) are not needed - especially when government is growing faster than inflation (again).
If the DFL wants a less regressive tax system I’m all for it - reduce spending and give the money back to taxpayers through a lower sales tax or fees which will lessen the regressiveness of our current system.