News Release: Journalist Bob Carney Jr. Fact Checks Mark Dayton's budget plan, and finds a total shortfall of $2.846 billion -- Dayton's "Tax the Rich" plan for $4 billion in revenue "can't possibly work"

• Carney provides a free download spreadsheet at www.republicancontract.com

• Carney plans to visit Dayton at the State Fair to question him about his plan

• Carney: "Dayton spent $3 million to sell Minnesota voters on a fatally flawed plan"

Contact: Bob Carney Jr. -- (612)-824-4479 (home and business)

                                          (612)-710-2212 (cell)

Note: please use this e-mail temporarily -- bobcarneyjr@msn.com

My e-mail address at republicancontract currently has technical problems -- Bob

Note: if you prefer to receive news releases at another e-mail address, please let me know -- Bob

For an archive of all news releases, and more information, please visit: www.republicancontract.com

Minneapolis, MN, August 27, 2010 -- Journalist Bob Carney Jr. has fact checked Senator Mark Dayton's budget plan, including Dayton's claim that $4 billion in tax revenue can be raised by his "tax the rich" plan. "Mr. Dayton's 'tax the rich' plan can't possibly work," Carney concluded. Carney calculates a total shortfall of $2.846 billion for Dayton's plan.

Carney plans to go to the State Fair today, with a camcorder, to present his findings to Dayton, and to question Dayton about the shortfall.

In an August 25th governor candidates forum moderated by Lori Sturdevant, Mr. Dayton responded to Tom Horner's demand for a specific top income tax rate, saying under his plan the top individual income tax rate would not be higher than 11%.

Carney, who has a professional background in financial modeling, has prepared a spreadsheet titled "Fact Checking Mark Dayton's Budget" -- available as a free download from Carney's news and information web site: www.republicancontract.com. The spreadsheet allows a user to enter higher marginal tax rates for three brackets:

$120,000 to $150,000

$150,000 to $500,000

Over $500,000

Based on marginal rates of 9%, 10% and 11% for the above higher tax brackets, Dayton's plan would produce about $1.36 billion in new income tax revenue for the next biennium.

Carney's analysis also disallowed $425 million in savings for reduced private contracting. "Mr. Dayton simply cut the total expenditure for this category in half, without saying who would do the work done by the missing half. Until Mr. Dayton explains -- and presumably corrects -- this obvious flaw in his plan, no net savings can reasonably be expected," Carney said.

Carney's $2.846 billion shortfall calculation includes $430 in additional Federal revenue from a recent $26 billion State Aid Package passed by Congress, subsequent to Mr. Dayton's plan. $263 million of the $430 million total requires Governor Pawlenty's approval, which Carney anticipates. Without the additional Federal money, Mr. Dayton's shortfall would be over $3 billion.

"Senator Dayton just squeaked by in the DFL primary. He was widely touted by the media as the candidate who came closest to having a comprehensive, complete plan for the budget deficit. I think it is very unfortunate that I am apparently the first person to have done a published, substantive fact checking analysis of Senator Dayton's budget. If some other journalist had done this before the primary -- showing what a huge gap there is between Dayton's budget plan and reality -- Speaker Kelliher may have won. As things stand now, Dayton's candidacy is, at a minimum, very seriously compromised by the $2.846 shortfall in his budget plan. Tom Emmer can now say, in reply to Dayton's demand for specifics: 'at least I didn't win a close primary by spending $3 million to promote a 'tax the rich' budget plan that doesn't add up and can't possibly work,'" Carney said.

Carney described himself as a "candidate-journalist" as he campaigned for the Republican nomination for Governor in the Minnesota GOP primary.  He received 8%, second to Emmer's 82%.  "This is journalistm.  I am continuing my work as a journalist for the remainder of the campaign," Carney said.  Carney will continue his Tom and me video series, now retitled: Tom, and Mark, and the other Tom and me.
 

Mr. Dayton's promise to Minnesota Voters can't possibly be kept

Mr. Dayton's web site says:

"Read my lips, 'Tax the rich.' Minnesota’s wealthiest citizens pay only two-thirds of their fair share of state and local taxes. That’s wrong. As Governor, I will raise taxes on the rich of Minnesota, NOT on the rest of Minnesota."

A TV commercial on Mr. Dayton's web site has the following script:

Narrator: Tim Pawlenty has protected tax loopholes for the richest Minnesotans, while cutting education funding for our children. Mark Dayton says it's wrong.

Dayton: We're going to make the rich pay their fair share in taxes. If the richest Minnesotans paid the same percent of their income as everybody else that would be over $4 billion in additional revenue. That would go a long way to solving our deficit. Being able to fund our schools, being able to reduce class sizes. The rich can afford to pay their fair share. They should be paying their fair share. And if I'm Governor they will pay their fair share.

Narrator: Dayton, Governor. For a better Minnesota.

Senator Dayton's web site has a link to a four page document titled: "Mark's Deficit Solution: Tax fairness, additional revenue sources and spending reductions." The main element of this plan is summarized in the document as: "Revenues from Restoring 'Tax Fairness': $4 billion. The plan identifies $684 from "Additional Sources", primarily from gambling and changes to tax rules for corporations.

Carney does not dispute Dayton's claim that wealthy Minnesotans pay less in state and local taxes as a percent of their income than other Minnesotans. However, Carney's budget analysis demonstrates that Mr. Dayton's "Tax Fairness" revenues fall far short of $4 billion. "This is due partly to the fact that we are part of a federal system, and also due to globalization. But this fact remains: the numbers simply do not add up. There is no way Mr. Dayton can come anywhere close to raising $4 billion from only the rich," Carney said.

The Mark's Deficit Solution document says:

Based upon the most recent MN Department of Revenue's Tax Incidence Study, if the richest 10% of Minnesota households paid the same percentage of their incomes in state and local taxes as the rest of taxpayers, they would provide $3.8 billion in additional revenues for the current biennium and, by extrapolation, over $4 billion in the next biennium. Thus, my first objective in offsetting an estimated $6 billion deficit for the next biennium would be to make the richest Minnesotans pay at least that same share of their incomes in Minnesota taxes (ie. a flat tax). Making Minnesota's taxes progressive would raise additional revenues.

I have not concluded how entirely to achieve that objective, and my campaign lacks the computer modeling capabilities to do so in entirety. However, my proposal thus far includes:

1. Require individuals making over $130,000/year and couples, filing jointly, making over $150,000/year to pay their fair share in taxes. I would add at least two, probably three, upper-income tax brackets, so that someone making over $1 million/year paid a higher percentage of income than someone making $130,000/year. For now (without additional computer modeling information) I would say that an individual making over $130,000/yr. or a couple over $150,000/yr. would pay slightly more in state taxes; people making over $500,000/yr. would pay more in state taxes; and people making over $1 million/yr. would pay significantly more in state taxes

"Dayton's claim that his campaign '...lacks... computer modeling capabilities...' suggests that running the numbers is a somewhat Herculean task. Actually, a spreadsheet model showing a reasonable approximation of what can be raised through the income tax -- using the same study Dayton used -- took me a few hours to prepare," Carney said.

Carney's spreadsheet model is based on data from a March, 2009 Minnesota Department of Revenue Tax Incidence Study. Page 42 shows "2011 Population Deciles" for projected State Individual Income Taxes. Columns provide data for: Number of Households; Household Income, and Individual Income Tax. Rows provide data, by household income, for the top 10%, top 5%, and top 1% of households. Carney calculated lines of data for these income ranges: 91% to 95%; 96% to 99%, and the top 1%. Carney built tables to apply the state's three tax rates for "married, filing jointly" and "single" households. With these tables, data on household income and income tax paid are used to calculate Minnesota Taxable Income for each of the income ranges. Using the average Minnesota Taxable Income data, marginal tax revenue can be calculated for each line item (91% to 95%; 96% to 99%, and top 1%), and for each tax bracket: ($120-150K; $150-$500K; above $500K). Carney assumed all households were 100% "married, filing jointly". Minnesota Taxable Income was also calculated for 100% "single" -- the differences with "married, filing jointly" are not significant, so it is reasonable to use the 100% "married, filing jointly" data set.

At the August 25th Governor candidates forum, this exchange occurred:

Horner: I think Senator, you owe it to many of the people in this audience, who I would guess are Sub S Corporations, LLC's, people who are going to pay your individual income tax, be specific, Senator. Tell them, what is the rate that you're going to ask them to pay? What's the rate Senator? Be specific.

Sturdevant: It just so happens that Mark Dayton has also asked for a rebuttal. Mark Dayton.

Dayton: Well I'll keep the top personal income tax rate below the highest in the nation, which is now 11 percent."

"Based on a top rate of 11% for Minnesota Taxable Income over $500,000, and a 10% rate for $150,000 to $500,000, my model shows Mr. Dayton's plan will raise $1.36 billion in new personal income tax revenue for the next biennium. My model is an approximation, it may be up or down by, say, 10% -- but the parameters of the model are pretty specific. It's evident Dayton is relying on new personal income tax revenue for the lion's share of his 'tax the rich' money. The bottom line is this: Dayton's plan simply can't work. Dayton spent $3 million to sell Minnesota voters on a fatally flawed plan," Carney said.

Other elements in the Mark's Deficit Solution document, "Revenues from Restoring 'Tax Fairness': $4 billion" category are:

DAYTON'S POINT 2. Restore the third property tax bracket (that was eliminated in 1992) to "million-dollar homes."

Carney called the Minnesota DOR, and was told in 1991 there was a third property tax bracket which was discontinued in 1992. The brackets were:

First $72,000: 1%

$72,000 to $115,000: 2%

Over $115,000: 2.5%

"$115,000 is hardly a 'million dollar home' -- even from 1991 prices to today's prices," Carney said. Carney obtained data from a 2004 Harvard University study showing there were 2,102 Minnesota homes worth over $1 million. Carney assumed the number was unchanged from 2004, and the average value was $2 million, and that an additional 1% could be both applied to the entire value of these homes, and would all go to the state, although other units of government would certainly want a share. Carney concluded that based on these optimistic assumptions, Minnesota could have additional revenue of $84 million for the biennium.

DAYTON'S POINT 3. Eliminate tax loopholes, such as the one allowing "Snowbirds" to live outside Minnesota for six months and one day of the year, and pay no personal income taxes in this state. I would ensure that anyone who spends a significant amount of time in Minnesota pays taxes in Minnesota.

Minnesota currently uses the "183 day" rule. According to this rule, even if Minnesotans own a home in Minnesota, if they have established residency in another state, and spend less that 183 days in Minnesota, they do not have to pay Minnesota income taxes. Some Minnesotans establish residency in other states, and stay in Minnesota less than 183 days, to avoid having to pay Minnesota Income Tax. Dayton has provided no data, and no specific plan, as to how he would collect Minnesota Income Taxes from these people. Of course, many of these people do pay other state taxes, including property taxes, and sales taxes when they are in Minnesota. If forced to pay the Minnesota Income tax based on less than half a year of residency, how many "part time Minnesotans", or "retired Minnesotans", would simply choose to become "100% former Minnesotans?" Until Mr. Dayton provides more specificity, no additional Income Tax revenue, and no net tax impact, can be calculated for this category.

DAYTON'S POINT 4. Increase Enforcement to Crack Down on Tax Evaders/Tax Cheats. The MN Legislative Auditor has stated that "Taxpayers are underreporting their tax liabilities by an estimated $1 billion annually." The MN Department of Revenue's Compliance Division spent $20.2 million in the 2008/9 biennium to collect an additional $133.7 million in tax payments, for a Return on Expenditure of 6.6. Absurdly, their budget for the current biennium was slashed to $10.4 million!

My goal would be to increase compliance staff to recover $400 million (20% of the uncollected money owed in the next biennium); more in subsequent biennia. $400 million - $60.6 million cost of collection ($400 million/6.6) = $339.9 million in additional biennial revenues.

'These numbers seem plausible, and I accept them on their face," Carney said.

The total for new net tax revenue from the Mark's Deficit Solution document, "Revenues from Restoring 'Tax Fairness': $4 billion" category is thus (millions of $'s):

Point 1. Increased Personal Income Tax revenue: $1,360

Point 2. "Million dollar homes": 84

Point 3. Snowbirds: 0

Point 4: Tax Evaders/Tax Cheats: 340

Total: $1.784 billion

The shortfall for this category is: $2.216 billion

Dayton's Point 11: Reduce Private Contracting -- who will do the work?

Here is Dayton's Point 11, from the Mark's Deficit Solution document:

11. Reduce Private Contracting. State agencies spent over $850 million on outsourced professional and technical services during the 2008-09 biennium. Cutting this outsourcing in half would thus save $425 million.

At the August 25th Governor candidates forum, Lori Sturdevant teed up this question:

"Great interest in this audience, in this room, about the use of outside consultants, private consultants, to do some of the public infrastructure work that gets done in this state. Some of you, I know Senator Dayton has talked about reducing the use of private professional and technical consultants by state government. I'd like to invite him, and the rest of you as well, to comment on the prospects for using outside consultants. If those outside consultants are not used, who will do the work, and at what cost? Will that cost be greater, or smaller, for taxpayers? Will the benefits be greater, or smaller, for us all? Senator Dayton, let's let you describe your position to begin with.

Carney commented: "It seemed clear to me that in asking this question, Sturdevant was wondering what I was wondering -- if you just cut spending for professional and technical outsourcing by 50%, who will do the work that was being done by the 50% of people who were cut? Dayton did not accept Sturdevant's invitation to say who would do the work, or how much it would cost -- and neither of the other two pressed Dayton directly on it. Listening to this part of the debate, I wondered if either Emmer or Horner has read the four page Mark's Deficit Solution document -- this point stuck out like a sore thumb when I read it. In any case, I can't accept that there will be any net savings until Dayton explains himself, and presumably corrects this obvious flaw in his plan."

Totaling up Dayton's plan -- a $2.846 billion shortfall

Dayton acknowledges at the end of his four page plan: "That leaves me $635.4 million to go."

As noted above, an additional $430 million for Minnesota has been recently been approved by Congress as a State Aid Package. Totaling everything up, the result is a $2.846 billion shortfall, as detailed below (millions of $'s):

"This is journalism," Carney said.  "It's too bad somebody didn't do this before the primary."

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