The 2013 Legislative Session brought Minnesota some much-needed improvements to the tax system. The omnibus tax bill raises revenues to fund the state’s priorities and close the budget deficit, and makes Minnesota’s state and local tax system based more on the ability to pay.
What people may not realize is that these changes also promote racial justice in Minnesota.
Racial justice advocates have made the connection between tax policy and racial equity. Low-income Minnesotans pay a higher share of their incomes in state and local taxes than those with higher incomes. It’s also the case that the benefits of economic growth are unevenly distributed, and people of color are more likely to have lower incomes in Minnesota. That means that people of color are over-represented in the income groups that pay the greatest shares of their incomes in state and local taxes.
The situation would be worse without two important state tax credits: the Working Family Credit and the Property Tax Refund. The Property Tax Refund is available to homeowners and renters, and the refund for renters is particularly important for racial equity, given lower levels of homeownership in Minnesota’s communities of color.
The omnibus tax bill reduces some of the regressivity of the current tax system by:
- Creating a new income tax bracket for the highest-income Minnesotans. This new bracket plays a huge role in narrowing the gap between the share of income that high-income and other Minnesotans pay in state and local taxes.
- Increasing property tax refunds for renters and homeowners, so that low- and middle-income Minnesotans don’t pay too high a share of their incomes in property taxes.
These changes are important steps toward tax fairness and racial justice in Minnesota. However, there is more work to do. In his supplemental budget, Governor Dayton recommended updating the Working Family Credit, which is Minnesota’s version of the federal Earned Income Tax Credit, to conform with federal EITC improvements. Unfortunately, this provision was not passed into law this year. This policy would further address fairness in Minnesota, and we urge policymakers pass this measure in the next legislative session. And there’s more to do to address Minnesota’s underlying racial disparities in income and homeownership.