Wednesday, March 23, 2011

MN Tax Incidence Study 2011

Another thanks to MN Publius. I may disagree with their interpretations, but they provide some great links. MN Tax Incidence Study 2011

The Liberal folks continually mention that the "Rich" don't pay their fair share... (links below) Let's try some math by saying that Brad, Bob & Bill are brothers with different incomes. (see pg20 of study)

  • Brad $20,000/yr (MN eff rate: 12.1%)=$2,420/yr
  • Bob $60,000/yr (MN eff rate: 12.1%)= $7,260 /yr
  • Bill $600,000/yr (MN eff rate: 9.7%)= $58,200/yr

Now all 3 of them use the same roads, utilities, county services, state services, etc. In fact Brad probably qualifies for and uses more additional services due to his low income. Now who is not paying their fair share? Note that Bill pays 24 times what Brad does and 8 times what Bob does for the same services. An interesting spin... And this does not even include the more progressive Federal taxes...

As you know, I am happy looking at this topic both ways. (G2A Entitlement or Gratitude) What frustrates me is that Liberals seem to feel they are in some way Entitled to a portion of the Wealth earned through an individual or family's hard work, saving and investment. Then they imply the "Rich" are villains who are not Paying their Fair Share... When in reality, Bill is paying at least 8 "Fair Shares". Maybe they should kick Brad in the butt, and tell him to start contributing more to America's Society and Wealth.

Being pragmatic... I understand that you can not get money out of an empty piggy back, and that raising Bill's taxes may be necessary and correct given the situation. But I think the Liberals should at least show gratitude and thankfulness as they are lifting more of "HIS" cash out of "HIS" wallet to pay for programs for other people. (ie paying their share)

MN Publius Richest 10% don't pay fair share
MN Publius Rich (still) pay less
MinnPost End Well?

Then there is the Local Aid argument... (see links below)

Now here is one of those very strange ideas of mine. Maybe instead of raising local taxes when Local Aid is reduced. They could improve their efficiencies or cut some low priority services...

Now, don't you want your local officials deciding how your local tax dollars are raised and spent... I truly do not understand how the State ever got involved in supporting all local communities. I can understand a few instances. (ie poor communities w/ little prop value base)

Finally, don't the rich and businesses have the most valuable property? (ie pay biggest taxes) Besides, the rate increases with the home's value... Seems progressive to me.

MN Publius LGA Declines, More Property Taxes
Speed Gibson LGA

15 comments:

Anonymous said...

The taxes you might pay for a more expensive home might be higher, but that doesn't mean the rate is higher. In fact, you will find that the property tax rate in areas with higher value homes is often lower than the rate in areas where the homes have a lower valuation.

--Hiram

Anonymous said...

Finally you are at least asking the right rhetorical questions. I have long advocated that us "rich folks" absolutely INSIST on paying our fair share, meaning the same percentage of our income as the po' folks do, in EACH tax category. we already pay the same sales tax rate, the we buy more stuff and thus pay more total dollars in taxes in our property taxes are more or less at the same tax rate as everybody else, though our homes are bigger and, again, we pay more total dollars. We also pay the same business taxes as everybody else in Minnesota who owns a business, but of course poor folks don't have businesses, so as a group we pay more, and of course the tax rate on businesses in Minnesota is higher than in neighboring states. The only thing left is the personal income tax, which the liberals want to hike in order to make the whole thing come out "fair" by their definition. But a fair income tax would be a flat tax, with no credits or deductions, and the same rate for everybody, on every dollar. You want fair? That's fair.

And did you ever notice? When liberals use things like the tax incidence study to say that their multiple and highly complex tax systems do not achieve fairness, their solution is always to increase the income tax on the rich, never to lower income taxes on the poor and middle class, which would be far more effective and welcome.

J Ewing

Unknown said...

John,
about this comment:

"Maybe they should kick Brad in the butt, and tell him to start contributing more to America's Society and Wealth."

Do you know any lower income people?

I have relatives with income levels similar to both Brad and Bill and from what I can see the "Brads" in my family are working harder than the "Bills."

I might also say that caring for people with disabilities (Brad) contributes more to society than being a partner in corporate law firm (Bill).

Also, Bill's after tax income leaves him well above the $ needed for the lifestyle of the reasonably rich. I believe Bill could afford both a nice home and vacation home, all the toys he wants (speedboat, snowmobiles, four wheelers, sportscar motorcycle etc.) both a nice ski and beach vacation, college for his kids and a well funded retirement. Bill can afford a increase in his taxes without changing his lavish lifestyle. How much money does one family need?

In my world view a "fair" tax system is one quite a bit more progressive than what we currently have.

John said...

Nokomis,
If you made $1,000,000 this year,
what in your opinion would be a "FAIR" amount to pay in taxes?

I am asking this question at MN Publius also.

Unknown said...

John,

Off the top of my head I will go with 50%. That will leave $500,000
to use as I see fit, of which I might give 50% to charities of my choice. With my 250,000 remaining I could afford college for my kids, fund my retirement, and perhaps a slight upgrade in my home (current 1500 sq ft home has a tiny entry that is always a mess.)

With surplus money $ that I accrue over time ( I am assuming my high income is not a one time payment) I could could be more generous with charities in my will.

So what is "fair" to you?

The thing that made it hard for me to decide was a belief that my charitable giving could put the $ to better use than the govt. I don't really value giving $100,000 grade to the pentagon.

Also, I didn't really get into the fine detail of local state and federal taxes, I am on vacation afterall. Maybe my 50% rate is too low when all levels are considered.

Anonymous said...

Here's a few questions more: Why is it up to the tax system to make things fair? Shouldn't the tax system be simply about raising the necessary funds to operate "necessary" government? Really, do we want government deciding how much of the money that YOU earn that you don't need to spend as you see fit? That THEY get to spend, out of what you earn? Shouldn't your tax bill bear some resemblance to the value of government "services" you receive? If the top 1% of earners pay 41% of all taxes, isn't that UNfair? If not, why not?

J. Ewing

John said...

By my math the current taxes put them pretty close to 50%...

35% Federal Income Tax (>$373K)
8% MN Income Tax
15% self employmentment tax (1st $100K)
~$10,000+ in Property Taxes
~7% Sales tax on most purchases

This article says ~44%. And since the MN state taxes are pretty high, we are probably above this. So let's say 47%...

This means you would pay $470,000 in TAXES, and get to keep ~$530,000.... Seems pretty close to your FAIR goal.. I'll agree let's raise taxes on them by 3%...

Now is all this noise and teeth gnashing really over 3%?

And by the way, you give money to charity first... That way you reduce your tax bill... Now should these philantropists be chastised for lowering their tax rates by giving to charities???

Anonymous said...

Spend some time reviewing the study. They include the concept of tax shifting. This is where "the extent to which each tax initially levied on business is shifted to consumers (in higher prices) or labor (in lower wages), and how much is borne instead by the owners of capital (in lower rates of return)." If that wasn't clear...... when a business owner pays a tax, they estimate if he DIDN'T have to pay that tax, how much cheaper his product would be and/or how much more he'd pay his employees. Through this calculation, the tax the income bracket (many times a high bracket) to the income bracket of those who buy his products or services. The 10% of MN houses with the lowest income pay 10.74% of their income in sales taxes.

So this report doesn't report on who physically pay the taxes, but on who the analyst estimate is financially impacted by that tax.

John said...

J,
I agree that this FAIR thing is a bit subjective, and definitely worth discussing...

Anon,
Its late, please simplify your comment. What do you think the result of the Analyst's shifting is?

Who's tax contribution do you think it overstates? By how much?

All,
The reality is as the income (denominator) gets smaller, the percentage (effective rate) increases quickly. Even if the Tax Bill (numerator) is miniscule.

The interesting thing is that the study focuses on Taxes... It does not focus on the actual net contribution... It is likely that though the bottom 2 or 3 income groups pay a relatively high effective tax rate, they actually get credits and services that way exceed their contribution.

For example, $10,000 X 34% = $3,400 in taxes. Assume $3,400 in housing assistance, heating assistance, free and reduced lunch, food stamps, tax credits, sliding fee scales, etc. Then their actual true effective rate is 0% or possibly negative...

And how in the world does a person earning $10,000 pay $3,400 in taxes when sales tax is only 7%... Something is funny here. Maybe that is the shift Anon mentioned.

And I know that those benefits add up pretty quick, and there is no way a middle class or above household will qualify for them.

John said...

Nokomis,
Yes I have friends and/or acquaintences in each of these income classes. The ones in the lower income groups seem to continue to sabotage their own success. Either the boss is out to get them, the work wasn't right, etc. There always seems to be something beyond their control that is responsible for their situation.

As for disabilities, I am pretty sure that Social Security pays if you can prove a true disability. Not sure how much?

As for "Relative Worth" of Brad and Bill, this is set by the market and our society's values... And by "how hard would it be for their employer to replace them?" It really does not matter what each of us individually thinks. And what if Bill is actually a Lawyer that recovers damages for people like Brad from unscrupulous hospitals? Does his worth increase?

Anonymous said...

Here's another way to look at it. Any tax that government takes comes out of the economy somewhere, meaning that the size of the economy left available to Bill and Brad and Bubie is all less to "divvy up" in the free market.

Those folks pushing this "fairness" idea don't give a hoot about fairness. They want to punish those who have been successful in order to grab some loot for themselves, but what they end up doing is making us all poorer.

J. Ewing

Anonymous said...

"Any tax that government takes comes out of the economy somewhere, meaning that the size of the economy left available to Bill and Brad and Bubie is all less to "divvy up" in the free market."

Possibly. But Bill may use the money in a more efficient way which can expand the economy. Or he might put the money under his bed which would contract the economy. The economy is not fixed in size such that every action taken with respect to it is a zero sum game.

Those talking about taxes as a punishment, don't give a hoot about fairness, or indeed do they care very much about the real effect taxes and tax rates have on the economy.

Taxes are neither a punishment or reward. Check your 1040 carefully. Nowhere does it as whether you are a good person or not. In a morally based tax system, or one that was based on social utility, we would tax teachers and firemen less than second basemen, and investment bankers, and possibly even less than politicians. But that is something we do not do.

Unknown said...

I came across another organization that calculates total taxes collected, this time as a % of total income (not sure if /how this is different than GDP)
Anyhow, the tax foundation report shows total taxes collected as a % of income at a 40 year low at 26.6%. I did a quick calculation that if this total was closer to 30% we could cut the deficit by a third.
I'm also curious as to why their total tax collected rate is 26% of total income and the other link showed on average individuals pay about 40%. Neither report changed my view any that the country needs to raise taxes to reduce the deficit, the question remains which taxes and how much.

Anonymous said...

"Taxes are neither a punishment or reward. Check your 1040 carefully." Not true. If I make more than a certain amount, I am punished with a higher rate. If I give away some of it to an "approved" charity I get a tax break. Take out a mortgage, open an IRA, or pay for your employee's health care and you get a break, just so long as you don't do "too much" of it, in which case you get penalized again with the AMT. Every single provision of the 65,000 page IRS code has its winners and losers. It cannot possibly be fair by any possible interpretation.

J. Ewing

Anonymous said...

And I must confess that I am just amazed at how many people seem to think that when spending exceeds revenues, the only possible solution is to increase revenue, never to cut spending! When spending increases by double digits every biennium, it is obvious where the problem lies.

J. Ewing