Dayton's Misunderstanding of Reversing Minnesota's Fortunes

Former U.S. Senator Mark Dayton announced Wednesday his DFL candidacy for governor of Minnesota, reported here by the Star Tribune.

In his speech Dayton said he would work to reverse Minnesota's fortunes and do whatever he could to bring new jobs to the state. To do this, he intends to increase state funding to K-12 education and tax the top 10% of Minnesotans which, he claims would raise $3.8 billion over two years.

Dayton's statements contain a bevy of items I could focus on; issues such as excessive government spending, class warfare, economic freedom, typical "Stage 1 Thinking", and choice in education. For now I will contain my statement to a few points.

I would like Senator Dayton to explain why he chose 10% as the cut-off for his tax increase. Was it because there is statistical evidence to support his assertion that this tax increase will necessarily result in increased revenues to the tune of $3.8 billion? Was it because 10% is a nice, round number to throw out? If so, should we choose to legislate and establish tax policy on such nice, round numbers? More to the point, is Senator Dayton suggesting the top income earners? Would this include income earned from a small business? Would this encompass business or corporate taxes? A more broad and, perhaps, philosophical, question; what makes someone "rich". More on that in a later blog post.

Furthermore, I would ask Senator Dayton for evidence that increasing taxes on the "rich" results in increased revenue to the government. Tax policy affects human behavior. The more you tax something, the less of it you will get. I.E. the more you tax cigarettes, the less people smoke; the more you increase say, the gas tax, the less people will drive; the more you tax income (in essence, work) the less people will work. Why would someone want to work and earn more, only to pay more in taxes? Simply put, it reduces the incentive to work and earn more.

The state of Maryland has tried this, increasing taxes on those it deemed "rich". When the state decided to increase the tax on millionaires - again, why just millionaires? Why not billionaires? Or, those making more than $500K? I'm stumped on this one - many of these millionaires decided to pack up and leave. Why stay and pay more when one could move to nearby Delaware or even Pennsylvania? Maybe because Delaware is, well, just Delaware. Though I hear nearby Pennsylvania has good cheese steaks, and that show "It's Always Sunny in Philadelphia" is filmed there. I like that show, it makes me laugh. Then again, "The Wire" was filmed in Baltimore and that may very well be the greatest show evah!

Anyway, I digress. The result for Maryland was that with the loss of all the millionaires, so went the loss in tax revenue. Now Maryland, like many other states, is facing a rather massive budget shortfall.

A more important point to be made is that these top 10% of income earners include business owners and employers. When taxes are increased on those who offer and supply various products and services, they will make the necessary adjustments to offset those additional taxes (or costs). These choices often include reducing in their workforce (lay-offs), the freezing or reduction of compensation to their employees, or perhaps reducing or eliminating certain benefits like reduced vacation time. Additionally, employers may choose to increase the price of whatever goods or service they provide in order to make up for the increased cost to them in form of taxes. Veronique de Rugy, a senior fellow at the Mercatus Center, touches on this in a recent article over at Reason.

Increasing taxes has a ripple effect. To simply assume that increasing taxes will result in increased revenue is short-sighted and ignores the effects it has on employment, as well as, the increase in the prices for various goods and services.

The bottom line is that increasing taxes on one group of individuals has an effect on all of us. If Senator Dayton intends to grab more money from those he considers "rich", he would be wise to consider the effects it has on the rest of the population, specifically those he claims to represent. 




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