The why and how of tax reform

Nan Madden
Mar 06, 2013

The time is ripe for Minnesota to reform our outdated tax system to make it fairer, end the cycle of budget deficits and sustainably fund the state's priorities.

That's the gist of testimony I gave to a recent House Tax Committee hearing on Governor Dayton's tax plan.

The February 27 hearing drew hundreds of people from throughout Minnesota, many of whom echoed this call for fairness as they talked about the real difference it makes when we invest in schools, housing, services for people with disabilities, youth mentoring, and police and firefighting.

Here's a summary of what I told the committee:

Tax reform is well overdue in Minnesota because of two major problems with the current tax system:

  1. It doesn't raise enough revenue to meet the state's needs, contributing to a cycle of frequent budget deficits.
  2. It asks low- and moderate-income Minnesotans to carry too much of the responsibility for funding public services. The wealthiest one percent of Minnesotans pay 9.7 percent of their incomes in total state and local taxes, significantly less than the 12.1 percent that middle-income households pay.

We call on policymakers to pass tax reform that narrows that gap, ends the cycle of budget deficits without painful and destructive cuts, and responsibly invests in the building blocks of our future success.

We thank Governor Dayton for releasing a budget and tax plan that seeks to reach those goals.

As you put together your tax bill, you may not take all the tax policy ideas the governor has put forth. But it's crucial that you raise enough revenues to meet those goals.

A part of Governor Dayton's tax plan that we urge you to include in your tax bill is a new income tax bracket. The 4th tier is an essential step so that the highest-income Minnesotans pay a similar share of their incomes in state and local taxes as other Minnesotans do, and is critical to a tax plan that is progressive overall. The experience of other states with similar policies find they have little impact on the number of wealthy individuals in their state. It will not affect most small businesses.

A comprehensive tax reform plan will likely include some increases in regressive taxes. The progressive pieces of a tax plan must be large enough to offset increases in regressive taxes. And we should use tools such as targeted tax credits to offset some of the tax increases on low- and moderate-income Minnesotans.

Reducing reliance on the property tax is a high priority in the Governor's tax plan. Property tax increases reach Minnesotans whether they own or rent their homes. We  urge you to include improvements to the Property Tax Refund for Renters in your tax bill this year.

We call on policymakers to seize this moment, and reform our tax system so that:

  • We no longer ask low- and middle-income Minnesotans to shoulder more than their share of the responsibility; and
  • We can make the investments in the high-quality workforce, strong infrastructure, safe and vibrant communities, and the ladders to the middle class that are the keys to our future success.

We look forward to more conversations with Minnesotans as we shape a tax system that is more fair and responsibly invests in our future.