Latest Posts





In the 1980s, Minnesota cut its top rate of income tax by 8 percentage points. What happened to income tax revenues?

Last week, I wrote about how, in Minnesota, higher income tax rates have not brought more revenue as a share of the state’s GDP. We can see this in more detail by examining a previous episode of tax cutting in Minnesota.

1984 to 1988

Department of Revenue data shows that between 1984 and 1988, Minnesota’s top rate of income tax was cut from 16% to 8%. The result, in nominal terms, was a rise in income tax revenues from $2.32 billion in 1984 to $2.62 billion in 1988. In real terms (2017 $), this translated into a slight fall from $5.44 billion to $5.41 billion. As a share of Minnesota’s GDP, income tax revenue fell from 3.2% in 1984 to 2.9% in 1988.

But 1984 was a bumper year for income tax collections. In 2017 dollars, revenues were higher that year than in any year since at least 1974. In only one other year prior 1992 were they as high. In fact, in 2017 dollars, income tax revenues in the ten years before 1984, when the top rate of income tax was 16% or above, averaged $3.9 billion. In the ten years after 1988, when the top rate of income tax was 8.5 at most%, they averaged $6.0 billion. Figure 1 illustrates this.

The same is true if we look at income tax revenues as a share of state GDP. In the ten years before 1984, when the top rate of income tax was 16% or above, Minnesota’s income tax revenues had averaged 2.7% of state GDP. In the ten years after 1988, when the top rate of income tax was 8.5% at most, Minnesota’s income tax revenues averaged 2.8% of state GDP. In other words, with a top income tax rate around eight percentage points lower in the period 1989 to 1998 than in the period 1974 to 1983, income tax revenues were higher as share of state GDP by one percentage point. Again, Figure 1 illustrates this.

Figure 1: Minnesota income tax revenues, 2017 $ and as a % of state GDP, 1974 to 1998

Source: Minnesota Department of Revenue

The lesson is that both of these measures of income tax revenues are, in fact, pretty independent of the top income tax rate. On this evidence, reducing tax rates will neither ‘starve the beast’, as some on the political right hope, nor lead us back to a Dickensian dark age, as some on the political left fear.

John Phelan is an economist at the Center of the American Experiment. 




Upcoming Events

  • Morning in Minnesota Breakfast Series Featuring Isaac Orr

    Location: The Oaks at Eagle Creek 1000 26th Ave NE Willmar, MN 56201

    Please join Center of the American Experiment on Tuesday, August 27th at The Oaks at Eagle Creek for breakfast with Center policy fellow and energy expert, Isaac Orr. Following his discussion of his new report, Doubling Down on Failure: How a 50 Percent by 2030 Renewable Energy Standard Would Cost Minnesota $80.2 Billion, Isaac will be joined by Rep. Tim Miller, Rep. Dave Baker, and Sen. Andrew Lang for a conversation about renewable energy standards in Minnesota. Tuesday, August 27, 2019 The Oaks at Eagle Creek 1000 26th Ave NE, Willmar, MN 56201 7:30 AM Breakfast & Check-In 8:00 AM Presentation…

  • Fall Briefing Featuring Kimberley Strassel

    Location: Ordway Center for the Performing Arts 345 Washington Street, St. Paul, MN 55102

    Purchase Tickets Here

    Register Now