In March, I wrote about Governor Pawlenty’s proposal to increase property taxes on Minnesota renters by slashing the renters’ property tax refund program by $50 million annually.  Since that time, the Minnesota Department of Revenue has released an updated Minnesota Tax Incidence Study (MTIS).  Based on the new MTIS, it is possible to update the tax incidence analysis in the March article.

In a regressive tax system, a disproportionate share of taxes is shifted on to those with the least ability to pay.  The Suits index measures the degree of tax regressivity or progressivity.  A negative Suits index denotes tax regressivity; the further below zero, the greater the degree of regressivity.  For more on the Suits index and the significance of changes in the value of the Suits index, please refer to Minnesota 2020′s April  29 regressivity analysis.

The graph below shows the rental Suits index in 2004 and 2006 and the projected Suits indexes for 2011 under current law and after the $50 million cut to the renters’ refund proposed by the Governor.

The Suits index for rental property taxes in 2004 was -0.09, which denotes significant tax regressivity.  By 2006, the Suits index dropped to -0.22.  Based on projections of current law for 2011, the rental Suits index will fall even further to -0.25, which denotes extreme tax regressivity.  The large decline in the Suits index over this period is due primarily to the failure of the renters’ property tax refund to keep pace with growth in rental property taxes.

The Governor’s proposal to whack $50 million from the renters’ refund will take a tax that is already extremely regressive and make it even worse.  The approximate rental property tax Suits index after the Governor’s proposed cut would be -0.30.

The Governor’s proposal to cut the renters’ refund will further accelerate the slide of rental property taxes into the realm of extreme tax regressivity.  In fact, on a dollar for dollar basis, nothing exacerbates growth in tax regressivity more than a cut to the renters’ refund.  State policymaker need to stand firm and reject the assault on tax fairness represented by the Governor’s cut to the renters’ refund.

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