Checking the facts on the price of government

October 11, 2018

Minnesota taxes are too high. Thats a prominent campaign theme for Republicans up and down the states Nov. 6 ballot.

As for its merits: A new tabulation of the price of government state plus local was released last week by Minnesota Management and Budget. It found that on average, 15.4 percent of Minnesota individuals income this year will be siphoned off by state and local taxes.

Whether thats too high, too low or about right is a matter for voters to decide. But they should know that this years price is down from 15.8 percent in 2011, when Gov. Mark Dayton took office, and from its quarter-century peak, 17.9 percent, in 1994. Whats more, state finance officials project that by 2021, the price is forecast to fall to 14.2 percent.

How is that possible, when the top state income tax rate rose from 7.85 percent to 9.85 percent on Daytons watch? Consider how the price is calculated. Its total state and local government own-source (that is, not federal) revenue divided by statewide personal income. Since the end of the Great Recession, total Minnesota personal income has been steadily climbing. Its up nearly 18 percent since 2014, according to the Federal Reserve Bank of St. Louis.

You didnt notice an 18 percent raise? Youre not alone. Even as total state personal income has grown, inflation-adjusted median household income has nudged only slightly higher. In 2016, it was $65,599, just $1,700 more than in 2005.

Thats statistically possible in an economy in which top earners are making more, the middle class is treading water, and the poor and near-poor are more numerous. That sums up the economic experience of Minnesota and most other states in postrecession America and it says a lot about the appeal this year of political promises to reduce taxes.

Politicians who make such promises often add that Minnesota taxes are high compared with those of other states. Theres new data on that score, too, courtesy of the Minnesota Center for Fiscal Excellence, a tax policy advocacy group. It ranks Minnesotas tax bite seventh-highest in the nation in 2016 as a percentage of total state cash income. Thats about where the state has stood in similar rankings for many years a reflection of the high value Minnesotans have long put on the two big drivers of state spending: education and health care/human services.

The total ranking obscures some distinctive wrinkles: Minnesotans paid the sixth-highest state income tax, which in Minnesota is structured to fall hardest on upper-income taxpayers. But the states property and sales tax rankings are decidedly middling, at 22nd and 31st, respectively. Those taxes fall disproportionately on lower-income people.

Whats more, Minnesota ranks 33rd among the states in outlays from the federal government as a share of the states total cash income a circumstance that reflects Minnesotas comparatively high incomes and compels this state to rely more than many others on its own tax revenue to pay for government services. That helps explain why Minnesotas state and local government spending per household ranked 12th in 2016 despite the seventh-place ranking on taxes.

Together, the price of government and state tax rankings offer voters useful context as they evaluate candidates notions about state and local taxation. In light of these numbers, its fair to ask candidates whether a tax cut is warranted when the price of government is already declining and if it is, whether the cut should relieve the burden of income taxpayers or be targeted at those whose boats arent being lifted by the nations rising economic tide.

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