In trying to figure out the implications of income tax increases such as the ones that Mark Dayton is proposing, I thought I would ask Harry and Louise, America’s favorite worried couple, to help me out. And they were kind enough to agree. Thank you, Harry and Louise!
I happen to know that Harry and Louise have a Minnesota taxable income (more about taxable income later) of exactly $151,000, and that they file joint federal and state returns. How do I know this? Well, since they are a figment of the Republican imagination, they can make whatever I say they make, right? We’ll make a series of assumptions (King Banaian ought to love that), about Dayton’s tax proposal (since the final one isn’t out yet; as I understand it, the Department of Revenue is being difficult about using the tax modeling software it has), and calculate the result. So, let’s see how the hard pressed Harry and Louise do!
Our first assumption is a new top marginal rate of 9% (which used to exist) is applied to taxpayers jointly with a taxable income in Minnesota of over $150,000; that’s a number that Dayton has discussed as the place to start with the higher rate.
So how much more do the hard pressed Harry and Louise pay under this scenario?
Eleven dollars and fifty cents.
What? That can’t be right!
Okay, let’s check the math. One thousand dollars of taxable income, taxed at the rate of 9% rather than 7.85%. The difference, for those of you keeping score at home, is 1.15%, and 1.15 times a thousand, divided by a hundred is, mirabile dictu, $11.50.
As King Banaian is my witness, I am not making this up.
The beauty of this little exercise is that it can be used a rule of thumb to evaluate a variety of proposals, viz.:
if the top marginal rates goes to 10%, the additional cost per $1,000 of taxable income over $150,000 is $21.50.
My God, you can’t get take out at D’Amico’s for $21.50.
If the top rate goes to 11%? An additional $31.50 per thousand of taxable income over $150K. And so on.
And the calculation works for incomes over Harry and Louise’s hard earned $151,000, too. Let’s say, just as an example, that the taxable income is $200,000, and the top rate — again over $150,000 of taxable income — is 9%. Additional tax? $11.50 times fifty, or $575.
Remember, this is a calculation based in Minnesota taxable income, not gross income. Gross income (the biggest number on your pay stub) will typically be significantly higher. Minnesota taxable income is based on federal taxable income. To arrive at federal taxable income, you subtract from gross income a number of items that you can read about at the link, but they include allowances for exemptions for dependents, some IRA and other retirement expenses, deductions for mortgage interest paid, some capital losses, etc. For a family to have a taxable income of $150,000, it is fair to say that its gross income is probably $175,000 to $200,000, more or less.
Let’s say Harry and Louise are knocking down $175,000 to get to the $151,000 taxable. Eleven dollars and fifty cents extra doesn’t seem too onerous, does it? Or even $21.50 or $31.50.
But really, it isn’t even that much, because you get to deduct state taxes paid in determining your federal taxable income. If you have a federal taxable income of $150,00, the feds will, in effect, pay about a third of any increase in state income taxes. Again, I am not making this up; ask the King.
Just for good order’s sake, and for those of you who are interested, here are a couple of links:
Minnesota Department of Revenue – tax rates
Minnesota Taxpayers’ Association – calculation of Minnesota taxable income from federal taxable income
If Harry and Louise are prepared to leave Minnesota over these trivial, piddling incremental amounts, and move to a pesthole where they have to send their kids to private school, drive on even poorer roads that we presently have in Minnesota, and, where the cities are turning out the lights and returning roads to gravel, (and never mind they’ll have trouble making as much money) I say God bless ‘em and blow ‘em a kiss as they leave, because they have much bigger problems than their tax bill.
The image was nicked from Greater Wingnuttia somewhere; I can’t even remember.