In their final debate before the primary Sunday night, two leading DFL candidates for governor wrangled over taxes.
House Speaker Margaret Anderson Kelliher said that former Sen. Mark Dayton's plan to raise taxes on the richest Minnesotans would give the state the highest tax rate in the country.
"We'd be higher than Hawaii," she said in the Aug. 8, 2010, debate.
"Not so, Dayton countered.
If you added $2 billion a year... you would go from 9th highest to 7th highest state in the nation," Dayton said. "We would not be the highest taxed state."
Kelliher's claim is inconclusive; Dayton's is on the money.
Before investigating these two claims, it's important to point out that Kelliher and Dayton are actually talking about two different things: tax rate and per capita tax burden. But both reveal important aspects of a state's tax system.
"We'd be higher than Hawaii."
Dayton has pledged to boost revenue $4 billion per biennium by making the wealthiest households in the state - those in the top 10 percent - pay their "fair share" of taxes; Dayton defines this as 12.5 percent, or the average state and local tax rate for the bottom 90 percent of earners.
Kelliher's campaign did not return PoliGraph's inquiries about her claim. But it appears she was referring to Hawaii's income tax rate, which, at 11 percent, is the highest in the country. (Minnesota's highest rate is 7.85 percent.)
Here's the rub: Dayton has not detailed his plans for changing the income tax rates on the top 10 percent. He's simply said the he wants the overall state and local tax burden to be 12.5 percent.
That said, income tax makes up a sizable portion of state and local taxes. To make the $4 billion Dayton's promised would likely require a significant income tax hike. So, it's not out of the question that Dayton's tax plan could put Minnesota's rate in front of Hawaii's.
"We would not be the highest taxed state."
Dayton points to an annual study compiled by the Washington, D.C.-based Tax Foundation to back his claim. According to the report, individuals pay about $4,688 annually in state and local taxes, making Minnesota the ninth highest in per capita state and local taxes.
Under Dayton's plan, the state would bring in about $2 billion more annually, and that means individuals would pay about $5,057 per year and Minnesota would be bumped to 7th place.
The Minnesota Department of Revenue tracks somewhat different rankings, but in any case, Minnesota would not be the highest taxed state in the country under Dayton's plan.
Kelliher's claim is an apples-to-oranges comparison. But it's not out of the realm of possibility that Dayton's tax plan could give Minnesota the highest tax rate in the nation. Until Dayton releases more details, Kelliher's claim is inconclusive.
On the other hand, Dayton said that Minnesota would not be the highest taxed state under his proposal. When it comes to dollar figures, he's correct.
Minnesota Public Radio News, Question by question: The final DFL debate, Aug. 8, 2010
The Tax Foundation, State Individual Tax Rates, 2000-2001, March 25, 2010
The Tax Foundation, Minnesota: State and Local Tax Burden, 1977 - 2008, accessed Aug. 9, 2010
Mark Dayton campaign website DaytonDeficitSolution.pdf
The Federation of Tax Administrators, State Individual Income Taxes, accessed Aug. 9, 2010
Minnesota Public Radio News, Tom Scheck interview with Minnesota Department of Revenue Tax Research Director Paul Wilson, accessed Aug. 9, 2010
Interview, Katharine Tinucci, spokeswoman, Mark Dayton, Aug. 9, 2010
Interview, Mark Haveman, executive director, Minnesota Taxpayers Association, Aug. 9, 2010
Interview, Bill Ahern, Director of Policy and Communications, The Tax Foundation, Aug. 9, 2010
It is perfectly reasonable to conclude from Mr. Dayton's proposals that he would make Minnesota's taxes the highest in the country. If he, to quote the article above, "... wants the overall state and local tax burden to be 12.5 percent," that will be the nation's heaviest tax burden.
If his plan is to raise $2 billion a year with higher tax rates on wages, he'll probably have to raise the top rate of 7.85% into double-digits where only Hawaii, Oregon and California have dared to go.
Kelliher's campaign responded this morning to our story. See below.
One note about the Tax Foundation report cited below: According to the group's data, Minnesota would rank first in state and local taxes if the rate is increased to 12.5 percent. However, Kelliher was specifically talking about the income tax rate in the debate - which we can't make a call on until Dayton releases more details about this plan.
“MPR's own reporting on this issue concluded that Dayton's tax proposal was ‘wishful thinking’ and inconclusive. A December 8, 2009 MPR story reported that "he would have to nearly double the income tax rate for the wealthiest 10 percent ... [to] rates of 13 percent to 15 percent ... the highest in the country." [MPR, 12/8/09] and [MPR, 7/30/10]
Since December, Senator Dayton has clarified that the central component of his tax proposal will be to "require the richest 10% of Minnesotans to pay just the same percent of their incomes in state and local taxes as they paid at the end of Republican Governor Arne Carlson’s first term in 1994." [Star Tribune, July 8, 2010]
That suggests that Senator Dayton would require the wealthiest Minnesotans (along with everyone else) to pay about 12.5% of income in combined state and local taxes. Currently, our state/local tax burden is 10.2% -- putting us at 12th in the nation. [Tax Foundation, Aug. 2008] Using the Tax Foundation data, we estimated that raising our combined state/local rate to 12.5% would mean a per capita tax burden of $4,403 per capita (state) and $1,360 per capita (paid to other states). [Tax Foundation, 2008 data]
According to the Tax Foundation, that would be the highest combined rate of any state in the nation. In terms of per capita burden, we would be 3rd or 4th highest in the nation. [Tax Foundation, 2008]"
Here's a novel idea... cut spending like the rest of us have had to.