Against a variety of scenic Minnesota backdrops, Revenue Commissioner Myron Frans details how the state tax code favors the state's highest-income residents and some companies that benefit from a complicated, selective system of tax breaks. As a result, Minnesota's middle class and many of its small businesses get the short end of the stick, says Frans.
This is the second video in the series called "Talking Taxes with Myron." This series coincides with Gov. Mark Dayton's drive to reform the tax code so it's simpler, fairer and supports economic growth. He'll present a plan for tax reform to the Minnesota Legislature in 2013.
For more information, visit the Minnesota Department of Revenue's tax reform website at http://www.revenue.state.mn.us/tax_re.... You can also email the commissioner with your tax reform suggestions at email@example.com
Who bears the tax burden in Minnesota?
When looking at fairness, the department study considers your relative tax burden. That is, all the state and local taxes you pay in relation to your income.
This mix of taxes reflects the decisions made by policy makers. Their choices determine how we raise and invest our tax dollars in Minnesota.
Minnesota families and businesses pay three major taxes: income, sales and property. Other state taxes and fees also contribute.
Measuring your state tax burden sounds complicated. But it's a simple idea. Add up all your state and local taxes that you pay and divide by your income. The result is your overall effective tax rate.
And if you're a middle class family, you likely pay a higher effective tax rate than families at the very top of the income scale.
What does that mean to you?
Let's take a look at two fictional Minnesotans: Joe Smith and Sarah Jones.
Joe Smith is a typical middle-income Minnesotan.
Sarah Jones is in the top 2 percent of income earners in the state.
These bushels have 100 apples each. So they represent 100 percent of each person's income.
Under our current tax system, Joe pays nearly 13 percent of his income as Minnesota taxes.
Sarah pays less than 10 percent.
To understand the impact, let's look at that another way.
Joe pays 12.7 percent of his income as Minnesota taxes. Sarah pays 9.8 percent.
Sarah's overall effective tax rate is 23 percent lower than Joe's rate.
We all work hard to provide for our families and invest in our future. Is it fair that high-income earners like Sarah pay a lower Minnesota rate than average earners like Joe?
What about business?
As a former business owner, I can tell you firsthand, businesses also want to be treated fairly. And they want to be able to plan ahead.
As we have added tax breaks over the last 30 years, our taxes have increasingly favored one business over another.
For example, the corporate income tax rate for most corporations in Minnesota is the same. On paper. But some corporations benefit from special tax breaks that lower what they actually pay. Meanwhile, others pay a higher effective rate, even if they sell a similar product or service.
It costs money to lobby for special tax treatment. Or to pursue tax planning strategies that use small gaps in our code to lower your bill. Many businesses -- especially small ones -- simply cannot afford that kind of investment.
Furthermore, constant tinkering makes our tax code more complex and unpredictable. Especially for small businesses that must do their own taxes or pay an accountant to do it for them.
Businesses find it hard to plan ahead when they don't know from one year to the next what will change. And complexity increases their costs to comply.
A fair tax system should treat equals as equals instead of favoring one taxpayer over another. Similar businesses should be taxed the same way in Minnesota.
I want to know what you think we should do to support Minnesota businesses in today's global economy?
We want to hear from you!
Together we can ensure our tax system is fair and balanced for all Minnesotans. And we can work toward a more level playing field for all businesses in the state.
So how can our tax system be fairer? Governor Dayton wants to know what you think.
I am travelling the state listening to Minnesota residents, businesses, elected officials and experts.
Your ideas will help the governor craft a tax reform package to present to the Legislature in 2013.
I encourage you to check out our website and attend one of our town hall meetings in your area. Or contact me directly with your suggestions.