Former U.S. Sen. Mark Dayton has been campaigning for governor with a simple catchphrase “Tax the rich.” At nearly every debate, Dayton says the rich aren’t paying their fair share in taxes:
“Tim Pawlenty’s own department of revenue says that the wealthiest 10 percent of the people in Minnesota pay only three fourths of their proportionate share of income in state and local taxes. The wealthiest 1 percent of Minnesotans pay only two thirds of their proportionate share of income in state and local taxes.
Tim Pawlenty is the best tax shelter the wealthy in Minnesota have ever had. And meanwhile this talk of no new taxes, of course, is not true for most Minnesotans. Property taxes have gone up. Fees have gone up.
My solution, first and foremost before I raise any other tax, I’m going to make taxes progressive in Minnesota again. If the wealthiest 10 percent of the people the state paid even a flat tax, paid even the same percentage of their income as everybody else, that would be $3.8 billion of additional revenues in this biennium. More in the next biennium.
Read my lips. Tax the rich. That’s where the money is. It’s only fair. We need that money for our schools and everything else.”
Paul Wilson, head of the Research Department at the Minnesota Department of Revenue, says Dayton is right that wealthier Minnesotans pay a smaller share of their income in taxes. He points to the Minnesota Tax Incidence Study that was done last year.
While Wilson quibbles with the numbers (he says his back-of-the-envelope calculation finds that hiking income taxes on the wealthiest 10 percent would general $3.4 billion not $3.8 billion) he said Dayton’s idea would generate more money and make the tax system more fair.
Dayton’s plan would come with significant costs. For example, Wilson said Minnesota’s top earners currently pay an income tax rate of 7.85 percent. He said the wealthiest 10 percent of Minnesotans currently have total household incomes of $137,000 or more before taxes.
Wilson said if Dayton hopes to generate $3.4 billion, he would have to nearly double the income tax rate for the wealthiest 10 percent:
“If that is what he’s suggesting, to actually do this by raising the top rate or even raising the top rate for those over $250,000 for married couples like one of the House or Senate bills did, you’re talking about rates of 13 percent to 15 percent if all you do is raise the top rate…”
“…But that’s how large of an increase in the income tax rate that it would take to make that level. To make that the same percentage of income as the state and local tax burden for top 10 percent as for the lower income groups.”
Wilson said that would make Minnesota’s top income tax rate the highest in the country.
Republicans have argued that increasing the top tax rate would only drive wealthier Minnesotans and small business owners to move to lower tax states.
Even Democrats in the Legislature weren’t willing to go as far as Dayton. The Senate passed a bill last year that increased the income tax rate on nearly every Minnesotan and increased the top rate to 9.25 percent for joint filers earning more than $250,000 a year. That bill would have generated $2 billion. Gov. Tim Pawlenty vetoed a House/Senate Conference Committee report that created a new income tax rate of 9 percent on joint filers earning more than $250,000 a year.
Listen to my entire interview with Wilson here on Dayton’s proposal and tax policy in general here: