Tax Fairness & Budgets
In the 20th Century, our nation built the strongest and most prosperous middle and working class the world has ever known. In many cases, a single income could support a family of four. More broadly shared prosperity helped improve the quality of our democracy as reductions in economic inequality helped pave the way for reductions in political inequality. The civil rights movement opened the doors of opportunity to more people. Racial inequality persisted, but we were making advances. There were still wealthy people of course, but wealthy interests did not hold as much economic and political power as they do now. All this was possible because we had progressive income taxes based on ability to pay. The wealthy paid a higher percentage of income and the revenue this produced was invested in education, infrastructure and programs that increased opportunity and growth for many.
But all that has changed. In the last forty years, the progressive nature of our tax system has been diminished by “reforms” designed to make those who were already rich even richer. While Republicans led this effort to reduce taxes for the wealthy, all too often corporate-influenced Democrats failed to resist or even participated. But now progressives are pushing back. Not a single Democrat voted for President Trump’s terrible bill to give more money to the rich. The bill passed with only Republicans votes. The bill is designed to punish people in states like Minnesota that have progressive income taxes. Jean believes we must resist pressure from Trump and his allies and keep pushing for tax fairness and quality services like education.
2017: Tax Cuts for Big Tobacco, the Wealthy and Big Business
It was clear from the start of the last session that House and Senate Republicans, who controlled both houses, were determined to spend as much as they could of the $1.1 billion surplus on tax cuts. More than half of the Republicans’ first proposed two tax bills benefited the wealthy and corporations, with little going to average Minnesotans. (Full text of law here; Governor Dayton's initial letter and update)
The Republican Legislature passed their $660 million in tax cuts for 2018-2019 in the special session. The cost to Minnesota’s treasury will continue to grow in subsequent years. Minnesota is going to be put back into the permanent, ongoing deficits that Governor Tim Pawlenty left as his legacy. Included in the tax law:
- Estate Tax breaks for the wealthy: Minnesota’s estate tax exemption threshold increased from $2 million to $3 million, phased in over the next four tax years. This measure benefits only the 1,100 wealthiest Minnesotans. Small businesses and farmers already have a $5 million exclusion in current law so this new law does not provide additional relief beyond what is already available to them.
- Tobacco Tax Cuts: The new law eliminated annual indexing of the state’s tobacco excise taxes, costing $30 million by the next biennium, and costing Minnesotans $300 million over the next ten years. This eliminates a significant public health benefit, once again putting cigarettes and other tobacco products well within reach of price sensitive young people—the true goal of the tobacco companies. It also included a $3 million premium cigar tax cut that was added in the middle of the night with no public input.
Coming Up in 2018 & 2019: In early December, Minnesota Management and Budget released the November Economic Forecast for the state. Minnesota now has a projected $188 million deficit in the current biennium, and a $586 million deficit for the 2020-21 biennium.
The November forecast was completed before the passage of the federal tax cut. The effects of that new law will be included in the February forecast and used to balance the state’s budget, something that must be done in the 2018 legislative session. The implications of the federal tax cuts are huge. The legislature’s excellent non-partisan staff will provide the Legislature with an analysis but that analysis is not ready yet. Jean will keep you updated as she fights for tax fairness.