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Minnesota gets ready for a tax tsunami

Published 10:06am Monday, December 17, 2012

Guest Column: By Phil Krinkie

With the growing possibility of an impasse in Washington on an agreement to avoid the “fiscal cliff’ and with the Democrats in total control of our state government, Minnesota taxpayers are likely to be victims of a “tax tsunami” headed our way in 2013.

Phil Krinkie

Day after day President Barack Obama and Congressional Republicans continue to talk, but make little progress toward meaningful budget discussions to resolve the major tax increases set to take place by the end of the year. There seems to be little concern by those inside the beltway about the real economic impact on the people who actually will have to fork over more of their hard earned money to help solve our federal government’s huge debt problem. At least that’s the concern for the 51 percent of Americans who actually pay federal income taxes. But for those of us who live in the Lake Wobegon part of the country, there is the potential of a double tax whammy.

The combination of no resolution to the expiring federal tax laws and Gov. Mark Dayton along with new DFL majorities in the House and Senate could mean Minnesota taxpayers will face massive tax increases in 2013. If there is no compromise on the “Bush” tax cuts that expire on Dec. 31, federal taxes are projected to rise by $533 billion. Most economists predict the results of this policy will be a slow down in the economy and a possible double-dip recession.

The expiration of these taxes will impact most Americans. First there are the tax increases included in the Affordable Care Act, aka Obamacare, which take effect next year, a 0.09 percent increase in the Medicare tax on incomes over $200,000. Also, there is a 3.8 percent tax on investment income over $200,000.

The estimated revenue from these two taxes equals $28 billion. In addition, the 2 percent payroll tax holiday that has been in place for two years is set to expire. This will impact all working Americans with a $27 billion tax burden. Next are the income tax provisions which will affect all income tax brackets as well as gift and estate taxes. The total of these taxes is $295 billion.

Lastly there is a group of other taxes that will rise by $87 billion. These other taxes include capital gains tax which could rise as much as 33 percent. Also the tax on dividends would increase a whopping 164 percent. Currently, dividends are taxed at 15 percent. If nothing is changed, dividends will be taxed at regular income tax rates, which could be as high as 43.9 percent. This tax increase would impact anyone who owns stock in a company that pays dividends.

All totaled these tax increases amount to over half a trillion dollars. And remember since 49 percent of Americans pay zero federal income tax, most of tax increases will be paid by only 50 percent of the citizens.

Here in Minnesota, Gov. Dayton and the DFL-controlled Legislature are poised to heap even more taxes on top of the massive federal tax increases that could occur in 2013.

Last week our state budget forecast showed a $1.1 billion shortfall. The immediate response from the public employee union, American Federation of State, County, and Municipal Employees was a call for $6 billion in new taxes. A $6 billion increase in taxes would equal more than a 16 percent increase in state taxes alone, not to mention possible tax increases at the city and county level. A $5-to-$6 billion increase at the state level is conceivable because two years ago Dayton laid out a plan to raise taxes by over $4 billion.

In his budget plan two years ago Dayton called for raising the top income tax rate from 8.25 percent to10.95 percent, which would have made Minnesota’s tax rate the second highest in the country. He also proposed a new statewide property tax on high-valued homes as well as a 3 percent surtax on people with incomes over $500,000. But if you think Dayton’s tax increases will only impact the wealthy, you need to think again.

Recently, a Dayton-appointed transportation task force recommended increasing Minnesota’s gas tax by as much as 40 cents per gallon. They also recommended a half cent sales tax increase to fund transit in the metro area, as well as increasing motor vehicle registration fees.

All totaled, the task force proposed raising transportation related taxes by $1 billion a year. But the tax increases won’t stop there. A number of legislators and outside interest groups are pushing to increase taxes on cigarettes by as much as $1.50 a pack Others are looking to raise alcohol taxes with a new dime a drink tax. Yet others, like returning House Tax chairwoman, Rep. Ann Lenczewski will renew her push to eliminate numerous tax deductions.

Unchecked spending by state and federal government is likely to create a tsunami of tax increases for Minnesotans and, like a real tsunami, these tax increases are likely to leave a path of economic hardship in their wake. Billions and billions of new taxes piled on working Americans is bound to cause increased unemployment and a downturn in economic growth. There is no such thing as taxing our way to prosperity.


Phil Krinkie, a former eight-term Republican state rep from LinoLakes who chaired the House Tax Committee for a while, is president of the Taxpayers League of Minnesota.