Dayton's income tax draws complaints, praise from state's top earners

Lauri Barber
Lauri Barber, from St. Louis Park, Minn., says as a top-tier earner she's happy to pay more income tax if that would help improve conditions for those who are poor -- as she once was.
MPR Photo/Mark Zdechlik

A key source of revenue in the Minnesota's freshly minted budget is a new higher income tax rate that the top 2 percent of earners will pay. The tax increase moves the top rate from nearly 8 percent to 9.85 percent.

Starting with his gubernatorial campaign in 2010, Gov. Mark Dayton has repeatedly said that he wanted Minnesota's highest earners to pay their "fair share." It's a puzzling concept for Mike Tierney, a retiree in Deephaven just off Lake Minnetonka.

"I'd like to have anyone define what is a 'fair share,' " Tierney said.

Tierney strongly disputes the notion Minnesota's tax system is now fairer because people like him will be paying more. He's done very well for himself in the injection molding business.

The new tax will cost him "thousands" more every year, Tierney said.

"It definitely will come out of somewhere. I doubt if we're going to get rid of a car, stop traveling or we're going to change our lifestyle very much," Tierney said.

Tierney said he'll probably reduce charitable giving to make up for the higher income tax bill.

Mike Tierney
Mike Tierney of Deephaven, Minn. says a new state income tax on the top 2 percent of earners will cost him "thousands" more every year.
MPR Photo/Mark Zdechlik

"Whether it's the Guthrie or the chamber orchestra or the 9 million other people who call everyday looking for donations," Tierney said.

To back up his "fair share" argument, Dayton cites revenue department studies that show top earners pay a lower percentage of their income in taxes than do middle- and low-income Minnesotans.

Critics of the new higher tax say it threatens to drive away people like Tierney who, they say, will move to lower tax states. But studies, including this one, have concluded tax increases are not a major reason why wealthy people move.

Tierney said he has no intention of leaving Minnesota. That is not the case for the owner of a printing company in the northwestern suburbs who's begun staking out an exit plan.

"It motivated me to sit down with our attorneys at Fredrikson and Byron and our tax accountants to talk about not having a Minnesota residency just because of the cost," the owner said.

The printing company owner agreed to an interview but didn't want his name used out of fear state tax collectors might single him out.

He said changing his residency would save him enough money to cover a substantial part of a new condo in, say, Naples, Fla. where there is no income tax.

"In some ways I feel guilty about it. I'm very tied to Minnesota. I love Minnesota. I've spent my whole life here. But when someone gives you a piece of paper and says 'here's how much you'd save,' it's hard to resist that pull," he said.

The business owner said it's a mistake for the 98 percent of Minnesotans who won't be paying the bill to discount it as no big deal for the top earners who will. He pointed out that the tax rate will rise by a substantial amount — 25 percent.

Lauri Barber, a full-time elementary school teacher in south Minneapolis, has come to a different conclusion.

"For me to pay a little more so the person that I was 10 years ago doesn't have to, I'm happy to do that," Barber said.

A decade ago Barber was broke, immobilized with arthritis and getting government help to feed her family. Now she and her husband have a lucrative consulting business in addition to her teaching position.

And when she's at her school, she's surrounded by kids who have very little.

"97 percent of these kids get free or reduced lunches. That's what my money's going for, is to give these kids the same opportunity that my children had," Barber said.

Barber said she and her husband have considered moving elsewhere. But she said it's clear to them that high tax states like Minnesota are better places to be.

"In other states where they don't have the taxes, they don't have the educational system we have, they don't have the best medicine, they don't have the best businesses," Barber said.

The new top-tier income tax rate takes effect this year and is projected to raise more than a $500 million annually. With it, Minnesota ranks as having the fourth-highest income tax rate in the nation.

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