Reforming the state tax codes

If we aren’t careful, Minnesota will become a society of the very rich and the terribly poor.

With April 15 quickly approaching, new research from the state finance and revenue departments are painting a startling portrait of the tax burden Minnesotans are shouldering. While the state as a whole now pays a historically low percentage of its personal income in taxes, middle- and lower-income Minnesotans are accounting for an increasing share of those taxes.

That trend threatens to widen the already-growing gap between the rich and the poor. Before Minnesota’s progressive traditions become a thing of the past, lawmakers should give serious thought to easing the tax burden for middle- and lower-income workers.

Several factors account for the shifting burden of taxation in Minnesota. A series of income tax reductions has primarily benefited the highest wage-earners. Also, Gov. Tim Pawlenty has favored a budget-balancing strategy that relies heavily on reduced aid to local governments and higher fees for things such as vehicle license tabs and state parks. Both user fees and the logical result of cuts in aid to local government – higher property taxes – fall most heavily on lower- and middle-income residents.

Little wonder, then, that a recent study of 2002 tax receipts from the Department of Revenue put the state’s effective tax burden for individuals earning less than $8,300 per year at 18.2 percent. The top 5 percent wage-earners, with annual incomes of $140,000 or more, paid an effective rate of 8.4 percent. Middle-income earners – from $45,400 to $57,600 per year – paid 12 percent.

The outlook for lower- and middle-income Minnesotans gets even bleaker when you add in a host of other economic trends, including higher health-insurance premiums and stagnating wages. What emerges is a state increasingly divided by social class and standard of living.

Reversing that trend means bringing the state’s creaking tax code into the 21st century. Growth and Justice, a progressive Minnesota think tank, has proposed increasing the top income tax brackets and lowering corporate income tax rates. That would return Minnesota’s tax code to its progressive roots while maintaining a business-friendly environment.

Tax reform is bound to be controversial, but we can all agree government should not make it harder for working families already struggling to make ends meet.