National report confirms: Minnesota has more work to do on tax fairness

A national report confirms what many Minnesotans already know: Minnesota’s tax system does not share the responsibility for funding public services fairly. The Minnesotans with the highest incomes pay the smallest share of their incomes in state and local taxes.

State and local taxes Who Pays? by the Institute on Taxation and Economic Policy (ITEP) emphasizes that fairness in state tax systems depends on how much the state relies on income, property, and consumption (sales and excise) taxes.

State income taxes normally are progressive – the amount of tax rises as income goes up. Property taxes and sales taxes, in contrast, are regressive – low- and middle-income people pay a higher share of their incomes in those taxes than those with high incomes. How a state structures these taxes also has an impact.

ITEP commends Minnesota for several positive features of our tax system, including having a graduated income tax rate structure, our property tax refund for homeowners and renters, and our state EITC, the Working Family Credit. These refundable credits offset some of the impact of regressive property and sales taxes.

ITEP notes that a relatively high sales tax rate and narrow sales tax base are regressive features of Minnesota’s tax system. And they highlight recent cuts in the property tax refund for renters, a policy decision that worsens regressivity.

There is more to do to improve tax fairness in Minnesota and narrow the gap between what the highest-income Minnesotans pay and what average Minnesotans pay, such as:

Several of these options are in Governor Dayton’s tax reform plan, which seeks to make the tax system more fair, end the cycle of deficits and invest in the state’s future.

For those who would wish to emulate “low-tax” states, the ITEP report has a warning: many “low-tax” states are high-tax states for low- and middle-income families.

-Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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One Response to National report confirms: Minnesota has more work to do on tax fairness

  1. Why is fairness determined by a percentage of ones income?

    Could fairness be conceived in another way? AS an Example, everyone uses our states services, so shouldn’t everyone pay their portion of the cost of those services. (ie: total cost of government services/population of wage earners). It seems to me under that definition of “fairness” low income earners are paying far less than their “fair share” while high income earners are paying far more than their “fair share”. So what is really fair?

    I’d really like to see those words “fairness”removed from the vocabulary of taxation.

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