No, ATR is not undergoing a drastic 180-degree reversal of all that we stand for. The above title is a quote that came from Mark Dayton, the former United States Senator and 2010 gubernatorial candidate from Minnesota. He and other Democratic-Farmer-Labor Party (Minnesota’s version of the Democrat Party) candidates spoke at an AFL-CIO forum the other day. Several of the candidates echoed Dayton’s sentiments. State Representative Tom Rukavina wants to add a five-to-ten percent income tax surcharge. Minneapolis Mayor and rumored 2010 candidate R.T. Rybek asserted that wealthy Minnesotans “have to pay a larger share of the burden. There’s no question about it.”
One candidate offered insight into the reasoning behind these tax hikes: Steve Kelley explained that “We have a structural budget deficit, and we need to raise additional revenue”. There are two reasons that raising taxes are not the answer to a structural budget deficit. The first is that a bigger pool of money does not fix overspending problems, it simply enables more overspending. There are more effective reforms that the state can do to fix shortfalls (see this post for some ideas that California created).
The second is that people and capital are mobile. Raising taxes on the wealthy will simply make the wealthy move. From 1997 to 2007, the ten highest taxing states lost over 3 million residents, who moved to states with lower tax burdens. This translates into a loss of $85 billion in aggregate income from those that left. Minnesota already has the sixth highest individual income tax in the country, according to a report just released by the Minnesota Taxpayers Association. At the Federal level, tax codes are already too progressive. Any further tax hikes at the state level would only compound this problem.
It is the wealthy that invest and create long-term economic growth, which translates into jobs for the rest of us. A further increase on their tax burden hinders their ability to do so. Worse yet, such misguided policy pushes them from the state altogether. Tax increases are never the answer for budget deficits; tax code reform and responsible budgets are.