Tax fairness in Minnesota is declining, says the Minnesota Budget Project. At the same time, most Minnesotans will face paying higher taxes, though not as much as a decade ago.
The Minnesota Budget Project's analysis of the state's Tax Incidence Study boils down the state's comprehensive report to a couple pages. Anti-tax forces don't like the tax incidence study, because the reporting methodology looks at where taxation actually lands, not just at who writes the checks. The data show that our revenue system is increasingly weighing on middle-income taxpayers and high-income earners are paying proportionately less.
Both income trends and policy choices have contributed to the erosion of tax fairness. The Department of Revenue notes that much of the increase in regressivity can be traced to increased inequity in the distribution of wealth in the 1990s, in which the benefits of growth went disproportionately to those with the highest incomes. But policy choices are also part of the picture, including a shift away from state taxes, which are more based on the taxpayer’s ability to pay, to regressive local taxes, especially property taxes. In 2002, local taxes made up 24.6% of total taxes, and this share rose to 25.8% in 2004 and is project to rise further to 28.5% in 2009. At the same time that local taxes are becoming a larger share of total taxes, local taxes are also becoming more regressive.
The Project's report only hints at another issue driving the costs of government toward the middle: Increasing fees. It mentions the governor's Health Impact Fee (tobacco tax), but not other fees and tuition increases. State and local taxes only cover about 2/3rds of what we ultimately pay for government services. The other third comes from fees and other non-tax sources, plus money from the federal government that flows back to the state and local governments.