Governor's budget demonstrates how to redistribute wealth

The governor's budget admits that it redistributes wealth, but not just in the Robin Hood sense of taking from the rich to give to the poor.  The proposed budget demonstrates how to take wealth from Minnesota and give it to Wisconsin, South Dakota, and other low tax states.  There is simply no other way to explain why his 4th tier and special 'tax the evil rich' tax generate progressively less revenue over a three year period.

According to the budget proposal, the new 4th tier tax rate of 10.95% for those making over $150k joint or $85k single will bring in an additional $1,003,900,000 in FY 2012(page 6).  But the same tax rate only brings in $886,400,000 in FY2013.  That is a 13% drop.  FY 2014 predicts another drop in revenue, down another 3% to $862,800,00.  Over two years, revenue from the new 4th tier tax rate will decline by 16.3%.  Why is that?

The revenue predictions for the special 'tax the evil rich' tax are even more dire.  The additional 3% tax on incomes over $500,000 is predicted to bring in $483,800,000 in FY 2012(page 8).  The next year revenue from this special tax will drop to $434,600,000-an 11% drop.  But that is pittance to FY 2014, when the special tax only brings in $248,400,000.  That represents a 94% decline in revenue.

Combined, the two tax rates are predicted to bring in additional revenue of  just under $1.5 billion dollars next year.  But two years later the two tax rates only bring in $1.1 billion dollars.  How does half a billion dollars of annual tax revenue disappear in three years?

The tax payers in Oregon know where the money will go-out of state.  Oregon tried a special 'tax the evil rich' tax in 2010, and 10,000 of the 38,000 'rich' tax filers disappeared. 

The tax payers in Maryland know where the money will go-anywhere but Maryland.  When they tried a special 'tax the evil rich millionaires' tax in 2008, 30% of Maryland millionaires were nowhere to be found come tax filing time.

The tax payers in New York know where the money will go-their special 'tax the evil rich' tax is so far running about $1.4 billion under projected revenue.

Not only will Governor Dayton's proposed budget not raise the revenue it claims it will, but it will seriously damage the state economy for years to come.  Every 'rich' tax filer that leaves Minnesota (those making over $500k) will have to be replaced by 10 households making $50k, just to keep tax revenues at current levels.  Using Maryland and Oregon as examples, let's say only 10% of high income filers in Minnesota leave the state (or just hide their income in South Dakota like our governor does).  The state budget office estimates there are 20,557 tax filers over the $500k level, so that means Minnesota could expect to see at least 2,000 high income tax filers leave the Minnesota tax system.

If you are thinking that it is unlikely that 2,000 of the richest Minnesotans will flee Minnesota for other states, you are probably right.  But they don't need to physically flee the state.  They simply need to reduce their taxable income in Minnesota below the magic number of $500k and $150k.  Unfortunately the complexities of our federal tax system make that a very reasonable goal.

This redistribution of wealth is not only likely, it is accounted for in the official revenue forecast in the governor's budget.  There is no other reason for a tax rate to bring in 30% less revenue in a three year period.