Think About The Reasons, Not The Numbers

I think about taxes about three times per year.

I think about them in September/October, because there are candidates running for office trumpeting their fiscal skills and tooting numbers that appeal to the masses. I think about them in December, because I need to get all my ducks in a row. The last time I think about them is generally in March, when I submit my tax forms to the respective state and federal government agencies.

As I drove to work, I heard an ad on the radio, for a website, "Tax the Richest". It's just a website, full of hyperbole, doom and gloom, and really large numbers. I could criticize that they provide no solutions, only a blanket rallying cry. I could also take cheap shots at their site design, but instead, I'd rather talk about "The Facts", as noted on their site, on the header menu bar. The document they reference is MN Dept. of Revenue, 2009 Tax Incidence Study (the top link, page 44 in the document, but page 58 in the PDF). But they don't link it, they don't want you to read it for yourself. They want you to take their interpretation, and believe what they want you to believe.

Their spin is that the lowest earners pay the highest taxes...let's check it out.

Let me get into some estimated numbers (you see, this is all estimated on 2011 numbers, which hasn't happened yet). The MN Dept. of Revenue estimates there will be 2,575,557 taxpaying Minnesotan households in 2011, 57% of which will find themselves in the lowest two income deciles (that is, 20%). This 57% of the population will provide $4,759,459,000 of the estimated $21,675,104,000 taxes collected in the year 2011, which is about 22%.

(Those of you thinking critically will say, "Wait, 22% is more than 20%, they really are paying a larger share of the taxes on their share of the income!" And you'd be right. So, we see their facts point to a flaw, but it's not nearly as big as they want you to think.)

It's generally accepted that a sales tax is regressive (meaning it costs the poor more and the rich less), because a poorer family will have to spend more of their income, exposing them to more sales tax (percentage-wise). However, the income brackets they have chosen are by population decile (10% segment). Since nearly 60% of Minnesotans find themselves making the lowest quarter of incomes in the state, this skews the data significantly. If you shift your perspective to income decile (back to the MN Revenue link, page 54 in the document, but page 68 in the PDF), you'll see that almost the entire skew of the "Percent of Income Spent As Taxes" comes from the sales tax issue.

2% is almost exactly the skew from Sales Tax being regressive. Suppose then, that instead of a 7.75% sales tax on purchased goods, we abolish the Sales Tax, and instead increase the State Income Tax by 2.2% (the state average sales tax paid). This would decrease the (estimated) tax burden on the lowest two income deciles by .5-1.5%, and increase the (estimated) burden on the highest two income deciles by .8-1.3%.

Look, a possible solution, to an identifiable problem, achieved through critical thinking!

A possible hangup with this solution, might be the loss of revenue from out-of-state persons who had been paying sales tax, and now are not liable for it (and who obviously don't pay our state income tax). I'm having trouble finding those numbers, though, so if anyone has a finger on those, that'd be great. I can't imagine it's more than .5% of the state income. I hesitate to say, "Raise Taxes on Business" because we all know they just raise prices and pass their costs directly to the consumers.

You know, we could use some critical thinking in politics. I'd run for office myself, but I doubt my platform of "Cut Spending and Raise Taxes!" would be very popular...but we wouldn't be worried about a deficit, or foreign powers owning our debt, or a myriad of other large problems you don't hear about from mainstream politicians.

Until another time,
Salt