Minnesota’s media calls out Gov. Walz’s ‘tax the rich’ rhetoric

Last week, Gov. Walz unveiled his budget for the 2022-2023 biennium. As The Star Tribune reported at the weekend:

Gov. Tim Walz is a man of many words. He invested a hefty surplus of verbiage last week while touting his new budget proposal to emphasize that “if you’re not a millionaire or a billionaire, your taxes aren’t going up at all.”

Walz’s dozen or so separate tax hike proposals were, he said, aimed at requiring the wealthiest Minnesotans and most profitable corporations to pay their “fair share” — the better to ease the pain of the less affluent who have suffered most in the pandemic-induced economic crisis.

But that isn’t true:

Such tax-the-rich rhetoric is certainly “nothing surprising” from a DFL politician. What was a bit unusual at the governor’s presentation was when, just moments after Walz proclaimed that only millionaires and billionaires faced tax rises, an uncooperative reporter dared to ask about Walz’s proposal for a whopping $1-a-pack tax hike on cigarettes.

Well, yes.

“I don’t deny that,” Walz said. And yet, having just finished pretty much denying it, the governor was, shall we say, “incentivized” to bring out some heavy verbal artillery for further clarification. [I’ll write more about this specifically later]

The corporate income tax hike

D.J. Tice, the author of this piece, went on to make a point we made last week, namely that the state government itself says that Gov. Walz’s corporate tax hike will be paid by ordinary Minnesotans:

All this is particularly important when evaluating Walz’s proposed big tax hike on corporate profits, domestic and foreign, which would put Minnesota’s already high business taxes near the very top among states. The idea, of course, is that if you’re not a millionaire or a billionaire, why would you worry about taxes on corporations?

It may be because hiking taxes on doing business, creating jobs and earning profits in Minnesota will disincentivize that behavior — stunting the state’s economy and/or indirectly hiking everybody’s taxes, especially those with lower incomes.

The Minnesota Department of Revenue’s biennial Tax Incidence Study is a remarkable piece of ongoing state research that painstakingly documents tax policy realities like these. State policymakers should read it sometime, given their often avowed enthusiasm for science.

Above all, in edition after edition, decade after decade, these studies have explained that:

“[T]axes on businesses are regressive … While the initial impact of these taxes is on business, they are partially shifted forward to consumers in higher prices or backward to labor in lower wages.”

The latest Tax Incidence Study, from 2019 (a new one is due this spring), reports that lower-income Minnesotans indirectly “pay” well more than twice as much of their incomes through business taxes than the top 1% of income earners do. (Individual taxes are far more progressive, hitting the rich harder.)

It works this way because businesses don’t pay taxes, people do. And the owners and stockholders of businesses, who technically are people, don’t personally foot any more of the tax bill through lower profits than they have to.

The burden on workers and customers gets even worse, the study explains, when state taxes rise compared with those in other states — disincentivizing, you might say, investment in Minnesota.

Minn Post‘s Peter Callaghan also noted that, despite the rhetoric, ‘Walz’s ‘tax the rich’ plan doesn’t just tax the rich‘:

…the burden from at least one of those taxes doesn’t just fall on the well-off or profitable corporations. Minnesota’s corporation franchise tax is borne by owners and shareholders — but also by workers and customers. Up to half of that tax is paid by residents who probably don’t count themselves as being among the “wealthiest Minnesotans.”

…

Every other year, the [Minnesota Department of Revenue] prepares a report that attempts to determine who ultimately pays taxes rather than just who — or what — writes checks to the state. And in 2019 , the Minnesota Tax Incidence Study was prepared by the agency to assess “the burden of state and local taxes across income groups.” Or as then-Revenue Commissioner Cynthia Bauerly put it: Who pays Minnesota’s taxes?

In discussing taxes on business property, purchases and corporate income, the study concludes that most of the tax burden is “partially shifted to consumers and workers.”

“The amount of tax shifting varies by tax and by business sector, depending on the scope of the product market (local or national) and the magnitude of Minnesota’s tax rates compared to those in other states,” the report stated. “To shift a tax, the individual or business legally liable to pay the tax must alter its economic behavior because of the tax. For example, a property tax paid by a business firm may lead the firm to raise its prices, lower its pay to employees, or the business owner may experience reduced profits.”

The analysis estimated that, in 2016, 57 percent of the burden from the state’s corporate income tax was borne by Minnesotans, with the rest paid by entities outside the state. Of the amount carried by Minnesotans. 76 percent was borne by consumers and 8 percent by company workers.

The capital gains tax hike

Callaghan also noted concerns about Gov. Walz’s proposed hike in Minnesota’s capital gains taxes:

…there were complaints Thursday by some members of the Senate Taxes Committee that the capital gains surcharge could hit farmers and small business owners when they sell in order to retire.

“I do take issue with the statement that this is only for high-income people,” said Sen. Bill Weber, R-Luverne. “For many, their business or their farm is their retirement plan. “When they sell that farm they are going to exceed that million-dollar threshold for that 4 percent surcharge.”

Cigarette and vaping taxes

Callaghan also noted that:

Walz’s plan also taps two other sources that are considered highly regressive, in that they hit lower-income people proportionately harder than wealthier taxpayers. Those proposed hikes — a new charge on vaping devices and a cigarette tax increase from $3.04 a pack to $4.04 a pack — would together raise $152 million over two years.

“The two most regressive taxes … are lawful gambling and the cigarette and tobacco taxes,” stated the 2019 tax incidence report.

Walz acknowledged that those taxes would fall more heavily on lower-income people, but he also said they are designed to incentivize behavior. “That’s no surprise,” he said.

Fee hikes

There are also items in Gov. Walz’s budget besides tax hikes which will make life more expensive for Minnesotans. MPR News‘ Brian Bakst reported that:

The Walz budget would increase the fees on new automobile license plates.

Depending on the type of plate needed, it could cost $7 more ($8 to $15.50 for a set of regular plates) or just a dollar or two ($12.50 to $13.50 for a single replacement personalized plate). 

…

There could be higher fees ahead for state park passes.

If the Walz plan goes through, annual permit fees for park entrance would go up $10 to $45. The daily pass would rise by $3 to $10. Together, there’s more than a half-million of these permits issued annually.

…

Boat registration fees would go up, with the amount depending on the size of a craft. The upcharge would be anywhere from $5 on a sailboat to $40 on a pleasure boat longer than 40 feet.

…

Pesticide fees assessed by the Department of Agriculture — a percentage based on gross sales — would tick up; the money would go for analytical equipment required for sensitive water-quality analysis. 

The insurance industry would also see higher fees. They’d rise anywhere from a penny more to $175 more depending on the product or service. 

… 

There are also things like the newborn screening fee. When a baby is born, there’s a battery of screenings done to test for dozens of disorders. The state wants to screen for a few more. So the cost would go up by $42. It’s $135 now.

As D.J. Tice noted, Gov. Walz talks alot. As I have noted previously, there is something of an inverse relationship between the amount of talking he does and the amount of information he actually communicates. It is always worth checking the small print.

John Phelan is an economist at the Center of the American Experiment.