American Experiment urges relief for all Minnesota’s taxpayers
Minnesota’s forecast budget surplus represents a historic opportunity to help put our state on the right track and make it somewhere people want to move to — not, as it is now, somewhere people want to flee from. We have a surplus because the state government is forecast to take more from the taxpayers than it says its needs. As we argued in January, it should leave that surplus with those taxpayers in the form of permanent cuts in income tax rates.
Not all of the near $18 billion surplus is free for tax relief. According to the November 2022 Budget and Economic Forecast, the ‘structural’ budget surplus is forecast to be $6.3 billion in the 2024-25 biennium and $8.4 billion in the 2026-27 biennium, or $3.2 billion and $4.2 billion annually. This is the amount of revenue that can be cut without cutting spending.
Using the Department of Revenue’s estimates of the revenue effects of tax rate changes — their Budget Options for November 2022 — we outlined two ways that this could be done.
A uniform cut across all rates
One way would be to cut all four income tax rates by the same percentage point amount.
A 1.4 percentage point cut in each rate, for example, would reduce income tax revenues by $3.0 billion annually. This would leave a surplus of $153 million in each of 2024 and 2025 and $1.2 billion in each of 2026 and 2027. In the latter biennium, then, tax rates could be cut even further, to 1.9 percentage points below the current rate in each bracket, and still leave a surplus of $130 million.
Concentrating cuts in the lowest rate
Another option is to concentrate the cut on the lowest income tax rate, 5.35 percent on income up to $20,525 annually if you are married and filing separately or $41,050 is you’re married and filing jointly.
If we cut this rate to 4.1 percent, revenues would fall by $3.1 billion, which would leave a surplus of $47.5 million in each of 2024 and 2025. If we then eliminated the bottom rate entirely in the 2026-2027 biennium, this would still leave a surplus of $149 million: indeed, we could also afford to cut the next rate up by 0.1 percentage points as well and still have a surplus of $74 million.
Cut taxes for all
Empirical research shows that high taxes like Minnesota’s slow economic growth, restrain job creation, and deter people from living in a state.
And yet, the state government wants to make all these obstacles worse by hiking taxes even with a historic budget surplus forecast. Minnesotans are going to get hit with more expensive fishing permits and car tabs, higher local sales taxes, new taxes on deliveries, and a payroll tax increase to fund a new paid family leave program.
This is the opposite direction of the one our state needs to go in. To join the America where prosperity is growing strongly — the one people are moving to rather than from — we should use this historic opportunity to cut taxes for all Minnesotans.