Making Minnesota’s tax system more fair is something we’ve talked a lot about on this blog.
The fact that Minnesota’s tax system is unfair was confirmed by the 2009 Minnesota Tax Incidence Study (PDF), which shows that the wealthiest 5% of Minnesota’s households enjoy a state and local effective tax rate that is significantly below the statewide average.
But whenever anyone tries to make Minnesota’s tax system less regressive and more fair, the tea party crowd reverts to hysterical cries of "class warfare" or "socialism."
MN2020 took these accusations head on, and found that even if the wealthiest 5% paid the same effective tax-rate as working Minnesotans, their average after-tax income would still be ten times greater than that of the typical middle-income households.
So what would happen if the wealthiest five percent were to pay the same percentage of their income in state and local taxes as other Minnesota households? Would this constitute the class warfare regressive taxation apologists so fear?
Hardly. If the state and local effective tax rate of the wealthiest five percent of Minnesota households were to increase from 9.7 percent-what they actually pay based on the 2009 MTIS-to the statewide average of 11.2 percent, their after-tax income would fall from about $295,000 to $289,000. (This estimate probably overstates the after-tax income decline by ignoring the federal deductibility of the state and local tax increase.) The average after-tax income of the wealthiest five percent would still be approximately 10.0 times greater than that of the middle quintile.
The bottom line is this: if the wealthiest five percent of Minnesotans were to have a state and local effective tax rate equal to the statewide average, the average income of the wealthiest five percent after subtracting state, local, and federal taxes will be about 10.0 times greater than that of a typical Minnesota household instead of 10.2 times greater.