Minnesota among top 5 states with most progressive state income tax systems

A new report by the Minnesota Center for Fiscal Excellence just confirmed what should be common knowledge: the rich shoulder a disproportionate share of taxes in Minnesota. In their new study, Minnesota ranked among the top five states with most progressive income taxes in the country.

In 2018, married joint filers earning $20,000 paid a tax rate 14 percentage points lower than that paid by those earning $150,000. Filers earning $250,000 had an effective tax rate 15 percent higher compared to filers earning $20,000. Filers earning a million dollars paid a tax rate 18 percentage points higher than filers earning $20,000.

Among the least progressive states —  one of which is our neighbor, North Dakota — the gap in tax rates did not exceed 5 percentage points. In these states, high and low-income earners paid close to similar tax rates in most of these states.

One major reason for Minnesota’s progressive system is due to the state’s generous earned income tax credit (EITC). The EITC effectively reduces the tax burden for low-income earners. States like California, since they offer only modest credits, have a slightly smaller gap in tax rates. For Minnesota, the gap in tax rates for low and high-income earners significantly declines after excluding IETC, indicating its impact on reducing the tax burden for low-income earners.

The Minnesota legislative session is poised to end next Monday. Lawmakers have yet to agree on a budget for the next biennium. The good news, currently, is that tax hikes could be off the table in this session. However, such proposals always have a way of coming back.

Minnesota legislators need to realize that the rich already shoulder a heavier burden. In other words, they pay more than their fair share. New tax hikes will only drive them away, stunting investment and, consequently, economic growth.