Jason Lewis: No wonder folks are leaving
Mar 24, 2016By Julie Goldberg
The Pioneer Press
Kudos to author Peter Nelson and President John Hinderaker at the Center of the American Experiment for excellent work detailing Minnesota’s outmigration (“When taxes rise, does money walk?” March 17) as a result of an onerous tax climate — which is clearly having an effect. Last year the Department of Commerce reported the state’s gross domestic product grew 1.4 percent in 2014 to $288 billion — slower than the U.S. average, which was 2.2 percent.
The key point is the total marginal income tax rate. Minnesota, with a top rate of almost 10 percent — thanks to Dayton Democrats — unnecessarily punishes the risk of work, savings and investment for many small, pass-thru businesses, the engine of economic growth.
Indeed, when you add our state’s burden to the top federal tax rate of 39.6 percent (it’s actually closer to 43 or 44 percent, given the phaseout of itemized deductions, PEP and PEASE tax-code provisions for high earners, etc.) along with payroll and property taxes, you’re approaching a whopping 60 percent top rate. No wonder folks are leaving.
But that’s also why reforming the federal income tax code is vital for Minnesota’s economy.
Former Sen. Tom Coburn highlighted the gory details in his 300-plus page 2014 report, “Tax Decoder.” In short, the federal code is riddled with loopholes and deductions for special interests, which means that everyone else’s rates must rise to make up the difference. There are thousands of carve-outs for energy (especially renewables), hedge-fund managers, Hollywood producers and nonprofits. The feds even subsidize high-income-tax states.
According to a New York Times story, General Electric (whose CEO served on President Obama’s Job Council) reported little or no income tax liability a few years ago because of “an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.”
Of course, we have witnessed the corporate tax-inversion craze here in Minnesota, too, as medical device maker Medtronic recently paid $43 billion to acquire the Irish firm Covidien and relocate its headquarters — and taxable profits — overseas.
But the tax fairness problem isn’t just at the top end.
The Earned Income Tax Credit for the working poor remains horribly abused, even by this administration’s standards. This is a refundable credit, which means the government writes checks to recipients. Just one problem: The IRS estimates, along with the GAO, that the program has a 22 percent to 26 percent “improper payment rate,” costing taxpayers up to $20 billion.
Combined with steeply progressive rates, the net result is the top 50 percent of taxpayers, those making just more than $36,000, now pay 96.7 percent of all income taxes, according to the Tax Foundation. The top 25 percent, those just above $73,000, shoulder more than 70 percent of the income tax burden. These folks are not the super-rich and shouldn’t be picking up the tab for others.
Our tax code of more than 4 million words is a mess. A much better way of collecting revenue is a flatter and fairer code where everyone has skin in the game and fewer loopholes means much lower rates. That’s why I support the Tax Code Termination Act, introduced last year in the House, which would actually sunset the federal tax code in three years, forcing Congress to embrace real tax reform once and for all.