Connecting the dots

As we reported last week, a combination of factors has led to hefty increases in taxes for many property owners in St. Louis County. The same is true in counties across the country, and recent changes at the federal level are playing a significant role.
According to the National Association of Counties, Congress’s July passage of the so-called One Big Beautiful Bill Act, or OBBBA, could collectively impact counties to the tune of $1 trillion over the next ten years.
“This removal of longstanding federal funding sources and federal cost shift represents a fundamental swing in the intergovernmental partnership, potentially pushing counties to choose between cutting services or raising local taxes,” states the organization on its website.
In many states including Minnesota, counties have for years served as the key administrators of many government programs, and the federal government has typically picked up most of those costs. That’s helped keep the financial burden of those programs largely at the federal level, where the government can tap vast resources (and deficit spend) to pay these costs.
But the OBBBA overturned that longstanding and well-functioning system. In order to free up funds to permanently enact tax cuts that overwhelmingly benefitted the wealthiest Americans, the GOP-crafted bill shifted more of the financial burden onto states and counties, while adding costly mandates without sufficient funds to pay for them all.
Other factors, like inflation and the sharply rising costs of health care, have also played a role in pushing county budgets higher. In the case of St. Louis County, the county board approved a preliminary levy increase of 12.4 percent for next year, an increase that taxpayers will certainly feel. While the board could still lower that number when it sets its final levy later this month, taxpayers in the county are going to feel a bite.
The OBBBA, as has been the trend in the U.S. for decades now, will make states and counties more reliant on regressive forms of taxation, primarily the property tax. It’s regressive because, unlike the income tax, it isn’t based on ability to pay. As we reported last week, some property owners on Lake Vermilion saw their property taxes jump as much as 50 percent for next year. The owners of those properties likely aren’t making more money, so they’ll now have to dig deeper to keep their properties off the delinquent list. Property owners will pay more, in part, because of the increasing income inequality in the U.S., an inequality fueled by changes in our tax structure that increasingly favor corporations and the wealthy.
The wealthy and corporations pay significantly less today in taxes, relative to federal spending, than they did in the past. In 1958, for example, corporations were taxed at 30 percent on their first $25,000 of profit, and 52 percent on profits above that. Back then, corporations really paid their fair share, with their taxes comprising just over 24 percent of all federal spending. Today, the corporate income tax amounts to just 11 percent of all federal revenues and less than eight percent of federal spending. That’s true in large part because of lower corporate tax rates, now ranging from 21 percent to 39 percent, along with countless loopholes that have been approved by Congress over the past 75 years, that allow many highly profitable corporations to pay nothing.
In 1958, the individual income tax was also highly progressive. It included 26 different rates, ranging from 20 percent to 91 percent, which increased steadily with rising incomes. At the very top, any income above $400,000 (equivalent to about $4.5 million today), was taxed at 91 percent. Today, we have just seven tax rates for individuals, ranging from 10 percent to 37 percent. In 1958, individual income taxes amounted to 43 percent of all federal spending. Today, that’s down to about 35 percent.
We bring up tax policy in Washington because it’s all interrelated within our federalist system and we need to connect the dots. These changes in the nation’s tax structure have prompted an astonishing increase in wealth among the richest Americans, who now use that wealth to buy power in Washington, along with assets, like lake homes, ski chalets, or ranch properties, elsewhere in the country. Part of what’s driving up tax bills on Lake Vermilion and other desirable properties is the impact of all that money looking for places to land. That drives the market value of these properties higher, and their tax bills eventually respond.
And there’s no reason to believe this trend will slow any time soon. The changes in our tax structure have enabled a generation of massively wealthy power brokers to call the shots in D.C. as well as in state capitals. They aren’t using their clout to fight for fairer taxation. That’s up to all of us— and we have a lot of work to do.