Freeze from "Still Sad" political ad
SAINT PAUL, Minn. -- A popular political ad in the Minnesota governor's race is bound to get your attention with its montage of crying babies and cute kids, but the underlying financial figures are outdated and in some cases misleading.
MN Forward, a political organization dedicated to holding the line on taxes by defeating Democrat Mark Dayton, launched the "Still Sad?" spot October 4th. The group's advertising campaign is funded by direct contributions from Target Corp., Best Buy, 3M and other Minnesota based companies.
In the news release that accompanied the ad launch spokesman Brian McClung said, "It's clear the number one issue in this election cycle is how best to position Minnesota for job growth. Mark Dayton's plans to raise taxes will kill jobs and stop economic growth."
The ad takes a similar tack, as a female voice tells viewers "Mark Dayton will raise job-killing taxes by $5 billion."
That claim, based on a June 9 story that appeared on Minnesota Public Radio, is now $3 billion off the mark. In September the Minn. Dept. of Revenue estimated Dayton's tax plan will bring in an extra $1.9 billion per two-year budget cycle.
The ad narrator continues, "More than $2,300 in new taxes per Minnesota family."
That figure is based on the outdated $5 billion estimate, divided by all 2.1 million Minnesota households. The figure also incorrectly implies the new income taxes will be spread across all income brackets. Dayton's plan is targeted to those joint filers with taxable income above $150,000 -- roughly $180,000 in gross income.
McClung, in the launch statement, pointed out that even Dayton's DFL primary opponent Margaret Kelliher said his income tax hike will affect the middle class families. Her argument was that a teacher and police officer, filing jointly, could earn that much money.
But, according to the Dept. of Revenue's director of tax research, Paul Wilson, roughly five percent of households in Minnesota would fall into Dayton's new brackets based on projections of 2012 and 2013. To say "$2,300 per Minnesota family" implies the average family will pay that much.
The ad then accuses Dayton of hypocrisy when it comes to taxing higher income families.
"Funny thing," the narrator says, "Some of Dayton's family money is in South Dakota where there's no income tax."
It's true South Dakotans pay no state income tax. What the narrator doesn't tell TV viewers is that Dayton's trust money is in a blind trust set up by the Daytons in 1934. Because it's a blind trust Dayton has no personal control over where assets are invested or held.
The "Job Killing" label
The term "job killing" often precedes the word "taxes" in conservative rhetoric. It's currently being used by both Republican candidate Tom Emmer and the Independence Party's Tom Horner.
That slogan is based on the notion that Minnesota will be seen as a state that's hostile to businesses if it adds higher brackets than the current 7.85% highest individual bracket. Dayton's opponents warn it will scare away new companies and accelerate the flight of retirees to tax-free states.
Opponents object to singling out wealthier taxpayers based on the argument that "at least half" of the state's highest earners are in reality small business owners. Businesses organized as "Subchapter S" corporations under federal law, treat business earnings as personal income rather than corporate income.
Limited liability partnerships, sole proprietorships and investors in farms also can file their earnings or "flow-through" income as personal income and possibly be affected increases in the personal rate. Investors in such companies can claim their passive income as personal income.
The argument is that when the state is "taxing the wealthy" it is "taxing the job creators" and making it more difficult for them to expland their work force if you raise personal income tax rates.
But, according to an analysis by the Revenue Department's Paul Wilson, only a fraction of those households affected by Dayton's proposed tax hikes derive most of their income as small business operators and owners.
He estimated that "8.7 percent of all Minnesota resident tax returns that reported flow-through income (or loss) from a sole proprietor, farm, partnership or S-corporation had positive flow-through business income that would be subject to the new tax rate."
That includes investors who reported only passive income, according to Wilson, and derive only a portion of their earnings from those business arrangements. In all 542,000 Minnesota residents reported flow-through income, and only 47,000 would have enough to fall into the new higher brackets.
Wilson did note, however, that those 8.7 percent of returns account for 64 percent of all flow-through business income reported in Minnesota in 2007. But he also pointed out many of those were investors or professionals such as doctors and lawyers who don't have employees.
MN Forward made the news earlier in the election cycle when the CEO of Target apologized to his employees for making the donation to a group supporting a candidate who has opposed measures aimed a gay equality in the legislature.
This is the first year companies can make direct contribution to political groups from their general fund treasuries, thanks to a U.S. Supreme Court free speech ruling. In Minnesota those donations can become known during the election season because the state legislature passed a disclosure bill, which was signed into law by Gov. Tim Pawlenty.
Minnesota Citizens Concerned for Life and the Taxpayers League of Minnesota sued in federal court in an effort to undo that disclosure law, but were turned down at the federal district court level.
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