The DFL solution

Let the debate begin! Are there enough rich people to close the state’s newfound $3 billion budget gap?

The DFL, which released its budget plan this morning, thinks there is. The Minnesota House today will vote on a plan to raise the income tax rate on people making more than $200,000 (after adjustments on tax returns). It says that will provide $400 million.

Last year, the Minnesota Senate tried to raise the tax rate on the wealthy to 9.25%. This plan raises it to 9.15%.

Arthur Laffer, the guru of the supply-siders, predictably is opposed to the concept. He wrote in the Wall St. Journal last year that in state’s where rich people are taxed more, rich people move out:

Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the “soak the rich” tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.

But the DFL plan is more about cutting than revenue increases. It provides big cuts in local government aid, the Department of Natural Resources, it reduces county mental health payments, grants for chemical dependency treatment, and the Metropolitan Council (kiss your bus route goodbye).

The budget deficit over the next biennium grows to $4.6 billion, according to the House Fiscal Analysis Department.

The idea is probably dead on arrival and sets up another round of vetoes and veto override attempts.

The two legislative leaders — House Speaker Margaret Kelliher and Senate Majority Leader Larry Pogemiller — will be on MPR’s Midday at noon.