Thursday, March 29, 2007
Fighting over a statistical artifact
One of the main reasons the tax incidence of lower-income Minnesotans is greater than others is our dependence on business taxes. The Department of Revenue�s study shows that taxes initially imposed on businesses are shifted forward to households, primarily through higher prices and lower wages, which fall more heavily on lower income households. Business taxes shifted to the $17,000 to $23,000 income households take 2.6 percent of their income, while those shifted to the $105,000 and up income households take only 1.2 percent.I looked at the study, and sure enough there it is, in Tables 2-2 and 2-3 (pages 27 and 29.) I've highlighed the business tax rates in the table to the right (taken from the study: click to expand.)
In fact, if state and local business taxes were cut in half, the �unfairness� would disappear. The $17,000 to $23,000 income group would pay 9.2 percent of their income in taxes, while the over $105,000 income group would pay 10.2 percent.
A slight across-the-board increase in the individual income tax could make up for the loss of business tax revenue, with no overall tax increases, and an even more progressive tax system. While individuals would pay a little more in income taxes, they would pay lower prices for goods and receive higher wages from their employers.Now a fiscally conservative DFL House caucus might be the place to find such a proposal. But alas, none are to be found.
Policy makers and economists know that if you want to discourage behavior, just tax it. This is the rationale behind increasing taxes on cigarettes and liquor. In Minnesota, taxing businesses doesn�t just discourage new jobs in this state, it discourages a progressive tax system. That result doesn�t sound fair for anyone.
Labels: economics, legislature, Minnesota