Raising Revenues by Bringing Fairness Back to the Tax System

State tax collections have fallen dramatically over each of the four consecutive quarters between the third quarter of FY 2009 and third quarter of FY 2010, with the last three quarters experiencing the sharpest drops in tax collections ever.  Revenues are projected to continue to decrease for 2011, and according to the National Governors Association and the National Association of State Budget Officers, states expect FY 2011 to be their worst financial year yet. 

Minnesota’s income tax is progressive, but the overall tax burden is regressive, but income taxes don’t tell the whole story.  If you consider all the state and local taxes paid in Minnesota, the top income earners (over $123,938 per year) take home 43 percent of the state’s total income but paid only 38.5 percent of all taxes.  As a whole, those top earners have a lower effective tax rate than households making less than $9,782 for the year.  The bulk of taxes in the state are paid my middle-income households earning $23,000 and $86,000 a year.  Higher up the income ladder, there is a wider gap.  The effective rate for the top 5 percent of households, those earning $175,704 and higher was 9.7 percent – compared with 12.4 percent for a family earning between $31,000 and $40,000.  For the top 1 percent, those earning $447,889 a year, the rate fell to 8.9 percent.