By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
Gov. Tim Pawlenty has built a formidable political career around his blue-collar roots and empathy for the working stiffs in this state. As he is quick to remind us around campaign season, Pawlenty is the son of a milk truck driver from South St. Paul, a hockey fan and U of M graduate who'd rather have a beer at the local tavern than savor brandy at the country club.
This just-folks amiability accounts for much of his vaunted charm and explains why people tend to give him the benefit of the doubt even when he cuts funding for education or throws tens of thousands of people off state-supported health insurance. They believe the gov when he says he's just trying to get the government off the backs of the regular Joes working hard to provide opportunities for their families.
But that's not how his policies are working out.
The most accurate measure of who bears the burden for state and local taxes is the "tax incidence study" conducted by the nonpartisan Minnesota Department of Revenue. In the most recent report, released earlier this month, the department declared that, due to Minnesota's growing economy, our overall tax bite will be reduced from 11.3 percent of reported income in 2002 to 11.1 percent in 2007. Beneath that bit of supposed good news, however, the study reveals that this benefit will accrue almost entirely to the state's wealthier wage earners. Meanwhile, the middle- and lower-middle-class folks whom Pawlenty claims to champion--those earning between $16,800 and $43,196 in 2002--will pay a greater proportion of their income on state and local taxes in 2007. And Pawlenty's policies are at least partly responsible.
More specifically, Pawlenty has steadfastly refused to raise state income taxes, a "progressive" method of taxation in that the rate increases as one's income rises. As has been subsequently revealed in various studies, this denial of new revenue simply shifted more of the burden for government services--especially education--onto local property taxes. That property tax load has increasingly been borne by homeowners, in part because home values have increased more rapidly than commercial-industrial property, and in part because the state had previously cut CI tax rates in 2001 and then mandated they could not rise beyond the rate of inflation.
Despite his admonishments that local governments must get their spending in order, Pawlenty surely knows his budget cuts have prompted these property tax increases at the local level. His two biennial budgets, particularly with respect to education, have been structured with that in mind. Pawlenty's refusal to raise the income tax has also made the state's sales tax more of a factor in government finances, which also takes a greater toll of those who earn middle incomes or less.
The revenue department study actually underestimates the ways Pawlenty's budgetary policies favor the rich at the expense of the poor and middle-class. Most significantly, it does not count government fees, which have risen by hundreds of millions of dollars--growing at more than double the rate of taxes--during Pawlenty's tenure. Obviously, 50 bucks for a marriage license or a speeding ticket is going to pinch Joe Schmoe more than it does Richie Rich. In addition, the revenue department study assumed that sales taxes on liquor sales and auto rentals would be allowed to expire this year, whereas Pawlenty's budget (and Legislative consensus) plans on continuing this regressive tax. And the study doesn't factor in the itemized deductions for state income and property taxes on Minnesotans' federal tax form, another tax break that benefits the wealthy more than the middle and lower classes.
Even without these factors, the study reveals that Minnesotans making over $323,000 in 2002 had 9 percent of their income go to state and local taxes, a slice that will decrease to 8.5 percent in 2007. Meanwhile, somebody making $27,704 in 2002 took an 11.4 percent hit from state and local taxes, a rate that will bump up to 11.6 percent in 2007.
And even that isn't solving the problem. The state is currently wrestling with its fourth budget deficit in four years. Merely by making the tax burden on the wealthiest 5 percent of the people equal to the average state and local tax rate would produce hundreds of millions of dollars in revenue. Yet David Strom, president of the Taxpayers League of Minnesota and a staunch Pawlenty ally, has said the price of asking the rich to pay their fair share "may be less economic activity."
It's a pretty desperate argument. Economic data from around the nation show no correlation between a state's economic growth and high income-tax rates--if anything, high-income-tax states have relatively robust economies. And if Strom is concerned about a drag on the economy, what does he think tossing tens of thousands of people off health care, as Pawlenty's budget proposes, will do?
Working-class folks might also want to consider who will be hurt by Pawlenty's desire to change the property tax system by reducing the renter's credit and maintaining the phasing out of limited market-value protections on hundreds of thousands of homes around the state. Or what class of people will generally be providing the hundreds of millions of dollars he envisions receiving through an expansion of gambling in the state.