Opining about Governor Tim Pawlenty’s $51 million veterans initiative, the Bemidji Pioneer wrote, “It’s almost a given that if the governor wants $51 million for his project, DFLers will want to raise taxes to do so, probably by restoring the state tax bracket on the state’s wealthiest who now pay about 8 percent of income to the state while middle-income taxpayers pay 12 percent.”

Minnesota Free Market Institute Economic Fellow King Banaian has written extensively on gory details of the Tax Incidence Report that spawned the often quoted but just as often misinterpreted relative tax rates cited in the Bemidji Pioneer editorial.

“The tax incidence study from which these numbers are taken makes strong assumptions about how businesses and high-earning individuals respond to taxes,” Banaian writes. “For example, a small business that organizes itself as a sole proprietorship, which pays the state through individual income taxes, is assumed to simply pay the tax rather than move.”

Along with Lynn Reed of the Minnesota Tax Association, Banaian notes that one of the main reasons the tax incidence of lower-income Minnesotans is greater than others is our dependence on business taxes. In March, also in the Bemidji Journal, Reed showed that you can completely remove the “unfairness” of the tax system by cutting the business income tax in half. And, in fact, the effective income tax paid by the middle class (the sixth decile of the income distribution in the state, for sake of this argument) has fallen consistently since 1998.