Even if Minnesota levies a tax surcharge on its richest residents, millionaires and others in the top 1 percent still get to keep more than 70 percent of the state and federal tax cuts they now enjoy, according to analysis released Wednesday by Minnesota Citizens for Tax Justice.

After factoring in the proposed surcharge, the top 1 percent retain more than $26,000 a year in tax breaks, the analysis shows. That brings the total windfall since 2001's tax cuts to more than $205,000 for each of these households, whose incomes average about $1 million.

"It's hard to argue that still ending up with $26,000 a year in tax cuts is some kind of burden," Wayne Cox, executive director of Minnesota Citizens for Tax Justice, said at a Capitol news conference.

Other households in the top 5 percent would retain 92 percent of their state and federal tax breaks, the analysis shows. These households ? who have incomes between roughly $162,000 and $597,000 ? would lose an average of only $301 from their roughly $3,600 in tax breaks under the Senate?s surcharge idea.

The Senate surcharge would create a temporary, fourth income-tax bracket of 10.65 percent on the state's 42,000 richest households. Cox argued that the surcharge is a far more responsible approach than what he called Gov. Tim Pawlenty's "failed experiment" of cutting vital public services while raising taxes on the middle class through higher property taxes, fee increases and 50 percent hikes in college tuition.

Wayne Cox: "It's hard to argue that still ending up with $26,000 a year in tax cuts is some kind of burden." Union Advocate photo

Who's really hurting business?
Cox also disputed Pawlenty and others who say the surcharge would drive out small businesses. Pawlenty and his allies note that many small-business owners ? who operate as partnerships or S corporations ? must report business income as personal income and thus would be directly affected by the surcharge.

But Cox pointed out that any income these businesses report is pure profit. "They've already paid their bills," he said. "Why would they leave Minnesota if they can make $1 million a year, and still enjoy tax cuts? What's the problem?"

Cox and Brian Rusche, executive director of the Joint Religious Legislative Coalition, said it is Pawlenty's "no revenue" approach that is doing more harm to Minnesota's business climate, especially the state's lagging investment in schools, transportation and other quality-of-life services.

Research consistently shows that worker productivity and other factors far outweigh taxes when businesses decide where to locate, Rusche said.

"We're cutting back our ability to create an educated workforce, which is about the stupidest thing we could do" to generate economic growth, Cox said.

School spending slides
Cox cited ongoing cuts that local school districts are announcing ? most recently in the Mounds View and the North St. Paul-Maplewood-Oakdale school districts ? and recent studies showing that Minnesota's per pupil spending on schools is now 6.7 percent below the national average. Five years earlier, it was 6.9 percent above the average.

"We look at taxes as an issue of fairness and adequacy," Rusche said. "We don't love taxes in and of themselves. We love what taxes can do."

Pawlenty's approach "is unacceptable to us," he said, because of its negative impact on health care, education and child care.

Noting that even with the surcharge, the state's wealthiest residents still would pay a smaller portion of their income in state and local taxes than middle-class residents pay, Rusche said, "We don't think that's fair."

Analysis of the effect of the Senate's tax surcharge was done by the Institute on Taxation and Economic Policy in Washington, D.C.

Michael Kuchta edits the St. Paul Union Advocate, the official publication of the St. Paul Trades & Labor Assembly. E-mail him at advocate@mtn.org

For more information
Visit the Workday Minnesota special section, Legislature 2005