PoliGraph: State’s top tax rate could be second highest in U.S.

It is budget season at the Capitol, and the Democrats who now control the governor’s office and both houses of the Legislature are pushing their agenda.

Gov. Mark Dayton and House DFLers want to create a new top tax rate to raise more revenue, and a coalition of business groups has launched an ad campaign to oppose the effort.

“Minnesotans pay some of the highest taxes in America,” says a television ad paid for by United for Jobs. “Now some politicians want you to pay even more. They’d raise the income tax rate to be the second highest in the country.”

The ad has some truth to it, but deserves some context.

The Evidence

Since he ran for governor in 2010, Dayton has pledged to raise income taxes on Minnesota’s wealthiest residents. Now, with a DFL majority behind him, it appears that pledge could become a reality.

Minnesotans already bear a higher tax burden on average than taxpayers in other states, according to a study by the Minnesota Center for Fiscal Excellence.

But are politicians really proposing to make Minnesota’s income tax the second highest in the country as the United for Jobs ad claims?

A lot depends on whether lawmakers approve a new top tax rate and an additional tax surcharge on the state’s wealthiest.

In his budget, Dayton proposed a top tax rate of 9.85 percent for taxable income over $250,000 for couples and $150,000 for individuals.

Alone, Dayton’s plan wouldn’t make the top rate the second highest in the country.

United for Jobs is also assuming the Legislature will approve a surcharge proposed by the House. The most recent DFL plan is to raise the top rate to 8.49 percent – slightly lower than Dayton’s proposal – and to impose an additional 4 percent surcharge on couples with taxable income over $500,000. The extra $1.2 billion in revenue would be used to pay schools money the state borrowed to balance last biennium’s budget.

DFL leaders say the surcharge would expire after the schools are paid back.

Combining the new top rate and the surcharge means Minnesota’s wealthiest would face a 12.49 percent tax rate – the second highest in the nation when compared to other statewide income tax rates and the third highest when compared to other states’ state and local income tax rates.

There’s an important point that is lost in the United for Jobs ad: most Minnesotans won’t be affected by the higher rate regardless of which plan is adopted. Dayton’s rate would affect only 2 percent of Minnesotans, and the new rate and temporary surcharge proposed by the House DFL would affect only .5 percent of Minnesotans.

The Verdict

There’s some truth to the United for Jobs ad. If the Legislature decides on a new top tax rate and a surcharge, it is likely Minnesota’s wealthiest will face one of the highest tax rates in the country.

But the ad deserves some context: the spot makes it seem that these new rates would affect many Minnesotans, that’s not the case. Very few filers would face a higher rate regardless of what plan the Legislature finally adopts.

This ad leans toward accurate.

SOURCES

United for Jobs, “Higher” ad, accessed April 15, 2013

Minnesota Center for Fiscal Excellence, Income Tax Burden Study 2013

Minnesota Department of Revenue, analysis of Gov. Mark Dayton’s tax bill, February 26, 2013

KMSP TV, 7 things to know about Gov. Dayton’s tax plan for Minnesota, by Tim Blotz, Jan. 22, 2013

The Tax Foundation, Top State Income Tax Rates 2013, accessed April 15, 2013

House Research memo on DFL tax plan, April 15, 2013

House Research, Combined State and Local Income Tax Rates Over 8%

Tax Year 2013, accessed April 16, 2013

Ryan Brown, spokesman, Minnesota Department of Revenue, April 16, 2013

Stacy Thompson, spokeswoman, United for Jobs, April 16, 2013

Nina Manzi, Minnesota House Research, April 16, 2013

Mike Howard, spokesman, House DFL, April 16, 2013