Economics 101: How to increase jobs and economic growth. Not by raising taxes.

There's a big debate in the states over how to increase economic activity and jobs.  Several state governors want to either eliminate or seriously cut their income tax rates to attract businesses and talented workers.  Others, like Minnesota, are heading in the opposite direction.  Governor Dayton wants to put in "a new, fourth tax rate of 9.85 percent on income above $150,000 for single filers and $250,000 for joint filers. Currently, the top state income tax rate is 7.85 percent."

Polling of Minnesotans suggest they oppose the sales tax increase because it will directly affect them while they support higher taxes on the wealthy.  Because, I presume, it means somebody else will be paying higher taxes.

According to the poll released Wednesday evening, 65 percent of Minnesotans support Dayton’s plan to hike income taxes by 2 points on the wealthiest 2 percent of Minnesotans. Only 30 percent polled opposed the move. The plan, which was part of the governor’s January budget proposal, would raise more than $1 billion for the state’s coffers while lawmakers are looking to wipe out a $1.1 billion budget deficit.

The same can’t be said for the governor’s plan to lower the state’s sales tax rate from 6.875 percent to 5.5 percent while adding it to many business-to-business services and clothing purchases of $100 or more. Only 30 percent of those polled support the move to expand the sales tax to clothing and things like haircuts and auto repairs, while 55 percent of those polled were opposed. When it comes to adding the sales tax to business services such as legal and accounting work, 59 percent of those polled were opposed, 34 percent supported the move, and 8 percent said they weren’t sure.

I suspect Minnesotans might feel differently about taxing the wealthy if they knew it meant fewer jobs and slower economic growth.

I've always felt raising taxes on anybody means the middle and lower classes will get hit.  There isn't enough wealth even among the wealthy to pay for the heightened appetite for more government so invariably taxes will rise on lower income groups.  That's the case with Dayton's sales tax increase proposal.  But also, businesses will simply pass along tax increases to consumers in the form of higher prices.  And finally, the wealthy can move to lower tax jurisdictions and there are enough tax shelters available that smart CPAs and lawyers will find them so they still can avoid the full effect of tax increase proposals.

One can't legislate away the laws of economics.