Tuesday, March 27, 2007

You get a C+ for comprehension 

Predictably, the local paper has weighed in on the budget battle in St. Paul. In editorials Sunday and yesterday the paper tried to split the baby with a call for higher taxes but not so much as the DFL would like.
Speaking in broad terms, we believe the state needs to adopt an overall budget solution this session that includes some form of tax increases. The state simply has too many needs, costs are rising too rapidly and too many services have been cut or delegated (forced onto cities and counties) in recent years to move forward based on a "no new taxes" philosophy.

Of course, businesses and the wealthy may not want to admit it, but the governor's own Revenue Department last week unveiled a biennial study that shows who should absorb most new taxes.

Wealthy Minnesotans are paying a slightly smaller share of their incomes in state and local taxes, and the tax burden is moving away from businesses and toward individuals.
I know many of the Times' writers, and while I haven't asked them I am pretty sure they are looking at the Tax Incidence Report that I discussed here last week. Assuming that's right, it's drawing the wrong inference from the tables provided.

First, as I noted then,
the top 1% of income earners (incomes over $354,758) in Minnesota pay 24.3% of the state income taxes in the state; the top 5% ($146,809), 43.1%; the top 10% ($105,451), 55.4%. Other taxes are not nearly so progressive, but state sales taxes are shifted onto consumers to a significant degree (a little more than half) and businesses pay about half of property taxes as well.
So how much more would you like them to pay? The problem with using the share amount of total taxes (which gives you the slight decline they report.) It is not based on a median figure but on an average figure which, because the people at the very top are making of the 1% are making huge amounts, overstates the denominator for the share for the median rich guy (I hope that makes sense.) This only happens on the two extremes, which is why I never trust those figures.

Second, and this is the part I think they miss, raising the tax rate on some base pre-shifting tells you nothing about how the tax burden will be distributed post-shifting. If raising the rate on corporate property to its current level lead to 40% of the tax being shifted forward to consumers, would you not expect that more would be shifted if you raise that rate higher? If the rich are able to avoid enough tax by changing where and when they collect reported income to cause the current slight regressivity, do we really believe the answer is to raise the rate on the same taxes? Why wouldn't they just shift away income more than before?

Remember that the reason the DFL and the Times editorial board wants this money is to pay for "needs" and "services" that "have been cut or delegated". It thinks by moving the tax burden from local to state it can collect more money -- the progressivity of the tax burden is just a way to sell the unpalatable to the middle class. Yet there is no study that tells you how much money will leak out of Minnesota when you raise rates higher as more accountants tell more of their clients to build a new home in South Dakota.