Thursday, October 14, 2010

Are You Happy to Pay for Mark Dayton's Better Minnesota?

Mark Dayton claims that he wants a Better Minnesota. His campaign echoes the message posted on signs that many liberals have displayed in their yards for years, next to the dog-eared Wellstone signs. These folks claim that they are Happy to Pay for a Better Minnesota.

Perhaps you are Happy to Pay, too, or at least believe that you are. There are a few problems with the scenario and you won't be paying for this Better Minnesota in a vacuum.

You must remember this: unless Congress acts in the lame duck session, the Bush tax cuts will expire at the end of the year. If you make enough money to pay federal income taxes, your taxes will go up. There's an excellent tool here that can help you understand the impact. Go ahead and test it out. Meanwhile, here are a few examples of what will happen if the Bush tax cuts are allowed to expire:

Scenario 1: Amber and Jason Smith, a young family of four, makes a combined income of around $60,000 a year. Jason is a mid-level office worker and Amber works on the weekends. With typical deductions, their taxable income would be about $38,000 a year. If the Bush tax cuts are extended (or better yet, made permanent), their federal tax burden would be $4,716.00. If the tax cuts expire, their tax burden would be $5,435.00. That's an increase of $719, or 14%. Would losing $719 hurt this family? I think so.

Scenario 2: Steve and Lisa Jones are a middle-class family with two teenage kids. Steve is an actuary and Lisa is the part-time office manager of a small company. They make a combined income of $110,000 a year. They might have a few things that help shelter their taxable income, so their deductions would bring their taxable income down to about $75,000.00. If the Bush tax cuts are extended, their federal tax burden would be $17,266.00. If the tax cuts expire, their tax burden would be $19,202.00. That's an increase of $1,936.00, or 11%.

Scenario 3: Lance and Maria Miller are a financially successful family with two kids in college. Lance owns and operates a small internet-based media company that essentially markets Lance's web design services. Maria spends her time either helping Lance with the business or doing volunteer work. They operate their business out of their home in Plymouth. Their income is $275,000 a year. With deductions and the services of a savvy accountant, they might have a taxable income of, say, $210,000 a year. If the Bush tax cuts are extended, their federal tax burden would be $75,333.00. If the tax cuts expire, their tax burden would be $82,817.00. That's an increase of $7,484.00, or 10%.

I don't think we need to play any violins for a family making $275,000 a year generally, but think about that -- do you think taking an extra $623 a month would affect the Miller Family's cash flow?

That's not the end of the story, though, since Mark Dayton wants a crack at the Millers, too. Currently at the top state income tax rate of 7.85% they'd be paying about $16,485 in state income taxes. Under Dayton's new plan, with a rate of 11.95%, they would be on the hook for $22,995, or $6,510 in new taxes. That works out to an additional $542.50 a month.

Now let's think about this in total. The Millers, evil rich people that they are, would be on the hook for $105,812 in taxes. I would wager that a large number of people who read this feature don't make a combined gross income of $105,812, to say nothing of having a tax bill of that size.

Perhaps Mark Dayton and his friends could spend this $22,995 of the Millers's income -- don't pretend that Dayton et al. would "invest" the money, because they will spend it -- in a more productive way than the Millers would. After all, Dayton aims to hire a lot of government workers to provide services and that $22,995 he gets from the Millers would help to pay at least part of the salary of a deputy undersecretary of something or other.

The thing is, families like the Millers are rare. The median household income in 2008 in Minnesota was $57,318, according to the U.S. Department of Agriculture Economic Research Service. Given that salaries have been essentially flat for the past few years and the unemployment rate has increased, I would wager that the median household income for 2010 will be about the same as it was in 2008, and that's the best case scenario. This is why Dayton is having such trouble balancing his proposed budget -- there simply isn't the money to pay for what he wants to do.

Here's the other thing -- it would be a tough thing financially for the Smiths or the Joneses to pull up stakes and move, because they work for other people. The Millers, because they run a business that can operate anywhere, can leave any time they'd like. And if the Millers decide that they don't want to Pay for a Better Minnesota and move elsewhere, Dayton is out of luck. And since Lance Miller's company is basically himself, he and Maria can easily pull up stakes and move to South Dakota, or Florida, or someplace else, and save a lot of money. In the case of South Dakota or Florida, which do not have a state income tax, they would save somewhere in the neighborhood of $22,295 off the bat, if I'm not mistaken. They might pay more in sales and property taxes and other fees in those other states, but they are currently paying sales and property taxes in Minnesota. And the sales tax rate in Minnesota is higher at 6.875% (and more than that in Plymouth because of the additional taxes Hennepin County adds) than it is in either Florida (6%) or South Dakota (4%).

You can support Dayton and hope that he figures all this out. But he's not going be able to balance the budget or supply half the things he's promised if he drives out people like Lance and Maria Miller. Would the Smiths and the Joneses be able to make up the difference? I'm skeptical. Maybe a Minnesota with a Governor Mark Dayton and without Lance and Maria Miller would be a Better Minnesota. That's not the way to bet, though.


Gino said...

its already happened to CA.

my name is Amanda said...

These are *imaginary* scenarios, and we can't have any of the scenario-women making equal or more money than their husbands?

Mr. D said...

Sure we can, Amanda. Make Maria Miller the company owner and have Lance assume the role I'd assigned Maria. Wouldn't change the analysis a bit.

Night Writer said...

Let's imagine that the Miller's business was one where they eventually hired as their office manager a young single-mom who had been working a retail job with no benefits. Now she has a decent salary, regular hours, small group health coverage through an HMO or perhaps a mini-med plan. The Millers decide to move their operation to another state. They want their office manager to come along, but her divorce decree doesn't allow her to take her child out of state. The Millers move, she's out of work, out of benefits. I suppose this could simply be called "bad luck."

Gino said...

let's say that the scenario woman is a 21yr old single mom who works in a gentleman's club.
the $2000 a week she makes is all cash, so she feels no pinch at all from the higher tax burdens, and continues to enjoy living in a MN that has been made better when people pay their fair share.

Anonymous said...

Gino you forgot a few things in your scenario: Because the Person is paid in cash which is undeclared, their reported income is below the poverty line making them eligible for various government programs. You also did not need to use a stripper. Your imaginary person could have been a bar owner, contractor, or any other person who deals in cash and fails to report their income.