Most Americans are not happy with the current federal tax system because they believe the wealthy are not paying their fair share.
A national survey by the Pew Research Center finds 64% of American adults feel that some corporations are not paying their fair share of taxes and that 61% feel the same about wealthy people.
This is the reason why the “tax-the-rich” plan is an appealing campaign promise for some candidates. But does it actually work?
Facing a budget deficit of $6.2 billion, Minnesota governor and billionaire Mark Dayton, whose grandfather built a department store empire that is today the Target Corporation, had a daunting task when he took office in 2011. Aside from inheriting a huge deficit, his new term also had to deal with a 7% unemployment rate left behind by predecessor, Tim Pawlenty.
Dayton put in place several drastic changes during his four-year term that would not only reverse the deficit but also create thousands of new jobs, according to Huffington Post.
He raised the state income tax on individuals earning over $150,000 and on couples earning over $250,000 from 7.85% to 9.85%. This initiative amounted to an additional $2.1 billion worth of collected taxes. This year, Minnesota tax collections are on track to total $42.3 billion.
Dayton then approved an increase to Minnesota’s minimum wage from $6.15 an hour to $9 an hour. It will be $9.50 an hour by 2018. He also pushed for legislation to guarantee equal pay for women.
Of course, his actions were met with opposition.
“The job creators, the big corporations, the small corporations, they will leave,” Republican state representative Mark Uglem warned. “It’s all dollars and cents to them.”
Just a year after Dayton’s tax increases went into effect, 6,230 more citizens filed in the top income tax bracket in 2013.
Gov. Dayton’s initiatives led to the creation of 172,000 new jobs to Minnesota’s economy in his first tenure as governor, allowing the city to have seventh lowest unemployment rate in the country at 3.5% as of Q4 of 2015, according to Business Insider. This is after Minnesota’s top income tax rate has become the fourth highest in the country. Minnesota’s Q2 2015 GDP growth rate of 4.5% was the 13th highest in the country.
The governor’s strategy to increase taxes on those who can afford it more has proven to be highly effective in turning the deficit into surplus. With the increased median income due to the higher minimum wage, the economic turnaround has been drastic. Having a $1 billion budget surplus in 2015, Gov. Dayton has committed to reinvest a huge chunk of that money into public schools. This year, the state has a surplus of $900 million.
Proving Dayton’s naysayers wrong, Gallup has ranked Minnesota’s economic confidence as highest in the nation for its second consecutive year. With Forbes placing Minnesota as the thirteenth best state for business and seventh best in economic climate, it seems taxing the rich may not be a bad idea after all.