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Minnesota has high business taxes which research shows hurt our economy. Will Gov. Walz raise them?

Last week, I wrote about new research which shows that higher state business and personal tax rates mean fewer businesses, less employment, and reduced capital investment. I pointed out that, considering Minnesota’s high tax rates – we have the fourth highest top marginal individual income tax rate in the country, at 9.85%, and the third highest corporate income tax rate in the country, at 9.8% – this might explain why our state lags the national average in new business formation, job creation, and capital per worker.

Fortunately, the research, by economists Xavier Giroud and Joshua Rauh, also found that while tax increases hurt business activity, the opposite is true of tax cuts. We don’t have to accept our state’s lackluster economic performance.

Sadly, as Fox 9 reported last week, Gov. Walz isn’t ruling out further tax hikes on Minnesota’s businesses.

Gov. Tim Walz isn’t ruling out tax increases on businesses to pay for major new initiatives like broadband expansion, alarming one key Senate Republican.

Walz is beginning to roll out proposals for his first state budget, starting this week with a pledge to city officials from greater Minnesota that he’ll seek $30 million a year in state aid to local government – a level not seen since 2002. He has said he’ll seek a “moonshot-type” approach to improving rural broadband access and a “transformational” plan to improve the state’s infrastructure.

Walz also hinted at plans to seek an income tax cut for lower- and middle-income people. But he did not close the door when a reporter asked whether businesses would pay a bigger share. 

Given Minnesota’s high rates of income tax even on lower earners – our lowest rate is higher then the top rate in 23 states – such tax cuts would be welcome. They would also, as per Giroud and Rauh’s research, help our economy.

But it would be a mistake to try and fund all this by hiking taxes on business. This would harm our state’s economy. Indeed, we should be looking to reduce the tax burden we place on businesses in Minnesota. Lets hope Gov. Walz sees sense.

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

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