Data: The GOP tax cut plan is tilted to the rich | Opinion

April 5, 2022 8:25 am

A tax cut sold as a break for working people turns out to be a windfall for the wealthy. Getty Images.

With a startling $9.2 billion budget surplus, legislators in St. Paul are locked in a debate about what to do with the money. Gov. Tim Walz and the DFL have proposed a mix of spending and one-time rebates, while Republicans have their eyes set on permanent tax cuts. The centerpiece of the GOP tax cut proposals is a $2.8 billion plan to slash the tax rate on the lowest income bracket nearly in half, from 5.35 to 2.8 percent. They have also proposed eliminating all taxes on Social Security.

Republicans have attempted to sell their ideas as a benefit to the working class, but the reality is that they will exclude Minnesota’s lowest-income residents, and the majority of the money will go to high-income taxpayers. Why is this the case, and to what extent do these ideas benefit the rich over the poor?

Let’s start with the income tax cut.

Because Minnesota exempts the first several thousand dollars of income from taxation, most of Minnesota’s lowest-earning taxpayers will not benefit from the Republican plan. Estimating based on the latest available IRS data, well over 500,000 working households will be excluded from the Republican tax cut entirely, while many more will receive a smaller cut because they do not earn enough to receive the maximum. The table below shows how much income is needed to receive any benefit from the GOP tax cut, as well as how much is required to receive the maximum.

Estimates from the Institute on Taxation and Economic Policy (ITEP), displayed in Table 2, illustrate how these calculations play out across income groups by showing what percentage of taxpayers in each income group would receive a tax cut under the GOP plan. Lower-income households are much less likely to benefit from the GOP tax cut, including nearly two-thirds of taxpayers in the lowest-earning quintile that are left out.

In addition to excluding the majority of the lowest-income taxpayers, the benefits of a first bracket tax cut would go overwhelmingly to high-income Minnesotans. ITEP estimates that 38% of the $2.8 billion 2022 price tag would go to the top 20% — Minnesotans making over $134,000 per year — while the bottom 60% of earners would receive less than one-third of the total. This distribution is shown in the next table:

The top-heavy distribution may be surprising given that the GOP has emphasized that their tax cut is targeted at the first income bracket. This is an intentional sleight of hand, however, meant to make the plan sound more fair. In reality, since everyone in Minnesota pays 5.35% on their first $28,080 of taxable income ($41,140 for married couples), everyone who pays Minnesota income tax will benefit. High-income households earning well above the first bracket will receive a tax break on every dollar in that bracket, while low- and middle-income households that earn below that will save less. Table 4 shows the average weekly tax cut for each quintile under the GOP proposal.

In addition to highlighting the lopsided benefits going to the top, viewing average tax cuts on a weekly basis also underscores a broader underlying problem with the GOP proposal: The savings for taxpayers are relatively modest, averaging $13.25 per week across all quintiles, but their cost in lost opportunity is enormous. $13 per week will not buy families better schools or affordable childcare, and it will not solve the high cost of housing or transportation, but they will prevent us from adequately funding these basic needs.

Childcare, for example, can cost anywhere from $8,000 to $16,000 per year, meaning families can expect to spend $30,000 to $60,000 for each child in the first four years alone. Based on the average savings from the GOP tax cut, it would take Minnesota families between 40 and 80 years to make up the difference.

Meanwhile, Walz has put forward a proposal to guarantee affordable child care for all Minnesota families at a total price tag of just over $1.5 billion for the 2024-25 biennium, or roughly one-fourth the cost of the Republican tax cut on an annual basis. And, while not all Minnesotans rely on schools or child care at any given moment, the benefit of funding them through modest tax payments over time is that they will not become crushing burdens on individuals when they are needed. This sort of thinking is sorely missing from GOP policymaking, and we are all worse off for it.

Similar issues arise in the GOP’s proposal to end taxation on Social Security benefits, which is less costly but even more top-heavy. ITEP estimates that the top 20% of earners will receive 58% of the Social Security tax cut, while 20% of the cost will go to the top 5% alone. Table 5 shows the share of the total Social Security tax cut as well as the average weekly tax cut going for each quintile.

Seniors rely on public services just as much or more than the rest of us, and this program would detract from our ability to sustain or improve them. It would also leave less to guarantee a good quality of life for their children and grandchildren.

At the cost of funding our collective futures, Republican tax cuts will return paltry sums mostly to higher-income Minnesotans. It’s a price we can’t afford.

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Eric Harris Bernstein
Eric Harris Bernstein

Eric Bernstein is a policy analyst focused on state tax and budgetary policy. Since the summer of 2020, he has been policy director for We Make Minnesota — a coalition of labor and community groups organizing to raise state revenue for investment in health care, education, racial equity, sustainable environmental stewardship and other public priorities.