Latest Posts





Rep. Sandell moves a bill to give Minnesota the second highest marginal rate of capital gains tax in the United States

This morning, I testified in front of the Minnesota House’s tax committee against HF 2756. This bill would hike Minnesota’s top marginal capital gains tax rate from 9.85% to 12.85%, the second highest in the country after California.

If someone buys, say, 100 shares for $1 each and their value rises to $2 each, this asset has doubled in value. But this ‘capital gain’ is only taxed when it is ‘realized’, ie, when the shares are sold for $2. The capital gain is $100 and it is this to which capital gains tax applies. This is a fairly sensible way of taxing capital gains.

Most states tax these capital gains at the same rate they apply to other income.* But problems arise when you have high income tax rates. By extension, this gives you high rates of capital gains tax.

As we wrote in our report, The State of Minnesota’s Economy: 2018, Minnesota is a high tax state. It is one of the 43 states to have its own income tax, but the top rate—9.85% on taxable incomes over $156,911—is higher than anywhere else apart from California, Hawaii, and Oregon. Equally significant, perhaps, is the fact that Minnesota’s lowest income tax rate of 5.35 percent is higher than the highest tax bracket in 23 states.

These rates also mean that Minnesota taxes capital gains heavily. This is not good for the state’s economy. As our population ages in coming decades, the share of Minnesota’s population working will shrink. This will mean fewer workers producing GDP to be divided among the population at large. All else being equal, per capita GDP – which is vital for determining standards of living – will fall.

To combat this, Minnesota will need its workers to become more productive. Our state’s workers currently lag the national average in labor productivity; we lag in GDP and Personal Income per worker and per hour worked. There is room for improvement.

This will require increased innovation and investment. We already lag the national average in terms of capital per worker, research and development spending as a share of GDP, venture capital per worker, and new and young businesses as a share of all business. So, again, there is room for improvement.

Given this, it makes no sense at all from an economic standpoint to lumber Minnesota with the second highest rate of capital gains taxation in the United States.

After the hearing, I had a conversation with a reporter who said that while Minnesota might have high taxes in some areas – personal and corporate income taxes, for example – it was only middling in others, such as the gas tax, where it currently ranks 28th nationally. I pointed out that Gov. Walz is trying to get us into the top five with his gas tax hike. Rep. Sandell wants us to be number two for capital gains tax rates. Minnesota’s Democrats currently seem to be animated by the spirit of The Wolf of Wall Street‘s Mark Hanna, bellowing “Gotta pump those numbers up. Those are rookie numbers in this racket”.

*Nine states — Arizona, Arkansas, Hawaii, Montana, New Mexico, North Dakota, South Carolina, Vermont, and Wisconsin — tax all long-term capital gains less than ordinary income.

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




Upcoming Events

  • Sen. Rudy Boschwitz Presents “Magnificent America”

    Location: Signatures 22852 County Road 17 Winona, MN 55987

    Please join Center of the American Experiment in Winona on Wednesday, September 18th for an evening with Sen. Rudy Boschwitz as he discusses “Magnificent America.” Rudy Boschwitz was born in Berlin, Germany in 1930. Rudy’s Dad came home the day Hitler came to power and told the family they would leave Germany forever. They settled in New Rochelle, New York. He came to Minnesota in September 1963, where he started Plywood Minnesota. Rudy ran successfully for the U.S. Senate, where he served from 1978-1991. Rudy was President George H. W. Bush’s Emissary to Ethiopia. His mission resulted in Operation Solomon,…

    Register Now
  • Morning in Minnesota Breakfast: Alexandria

    Location: Alexandria Golf Club 2300 North Nokomis Northeast Alexandria, MN 56308

    Please join Center of the American Experiment on Wednesday, September 25th at the Alexandria Golf Club for breakfast with Center policy fellow and education expert, Catrin Wigfall, as she explains the Center’s “Great Jobs Without a Four-Year Degree” project. Following her presentation on workforce development issues, Catrin will be joined by a panel of local leaders to discuss how Alexandria can better attract and retain young talent. Wednesday, September 25, 2019 Alexandria Golf Club 2300 North Nokomis NE, Alexandria, MN 56308 8:00 AM Breakfast & Check-in 8:30 AM Presentation 9:30 AM Conclude Free, RSVP Here

    Register Now
  • Fall Briefing Featuring Kimberley Strassel

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

    Purchase Tickets Here

    Register Now